Data Reveals Strong Growth in Gross Domestic Product
WASHINGTON (AP) -- The economy is surging back to life, gratifying the White House but jolting Wall Street. Powered by a heavy spending for business computers and consumer goods, growth accelerated to 2.8 percent in the first three months of the year in spite of blizzards, government shutdowns and a major auto strike.
The White House, hoping for a strong economy in an election year, was ecstatic, but financial markets tumbled, fearing the stronger- than-expected growth will force the Federal Reserve to start raising interest rates.
"This is plain and simple good news for the American economy and more evidence that the president's economic strategy is paying off," said Laura Tyson, head of President Clinton's National Economic Council.
Private analysts agreed that the surprisingly strong increase in the gross domestic product -- the nation's total output of goods and services -- depicted a sizable rebound from a barely discernible 0.5 percent GDP gain in the fourth quarter of 1995.
"The economy is cooking," said Allen Sinai, chief global economist at Lehman Brothers in New York. "This report says business is terrific and life for American workers is going to be much better this year than last year in terms of job availability and higher pay."
While that is just what an incumbent president facing voters in November would like to hear, financial markets saw clear risks.
Investors fretted that the economy is growing too rapidly for the sixth year of an economic expansion and this will force the Federal Reserve to cool things off with higher interest rates.
The Dow Jones industrial average was down more than 100 points late in the day. A huge selloff in the bond market pushed the yield on the benchmark 30-year Treasury bond above 7 percent, its highest level in a year.
"The market is clearly worried that the Fed will have to slam on the brakes," said David Wyss, chief financial economist at DRI-McGraw Hill Inc.
Wyss said that without the adverse effects of the General Motors strike, the government shutdown and the snowstorms, the GDP would have expanded at a phenomenal rate of 4.4 percent in the first three months of the year, double the speed limit that Federal Reserve Chairman Alan Greenspan has set for sustainable, noninflationary growth. …