Economy grows 4.2 percent in first quarter
WASHINGTON (AP) – The economy started out the year solidly, growing at an annual rate of 4.2 percent in the first quarter in a performance that suggests the recovery has staying power. That is good news for President Bush, who is counting on healthy economic activity this summer as he campaigns for re-election.
The increase in gross domestic product from January through March was a slight improvement over the 4.1 percent rate over the final three months of last year, the Commerce Department reported Thursday.
The first quarterly report for 2004 fell short of the 5 percent pace analysts were forecasting. Nonetheless, it indicated the economy is on firm footing, economists said. Growth in the past three quarters has averaged 5.5 percent, the strongest for any similar period in 20 years.
“The economy has settled into a sustainable, self-reinforcing growth path,” said Sung Won Sohn, chief economist at Wells Fargo.
GDP measures the value of all goods and services produced in the United States. It is considered the most important barometer of the economy’s fitness. Spending by consumers, business and the federal government, especially on defense, contributed to first-quarter GDP.
The economy figures prominently in the presidential campaign between President Bush and presumptive Democratic nominee John Kerry.
“I have a sense that an economic light switch went on in the first quarter. Everyone is feeling so much more upbeat and I think that will be reflected in the second-quarter GDP number,” said Mark Zandi, chief economist at Economy.com. From April through June, the economy is expected to expand at a rate in the range of 4.5 percent to 5 percent, according to some analysts. Growth in the second half of this year should clock in at around a 4 percent pace, some economists said.
“Looking forward, the prospects for sustaining solid economic growth in the period ahead are good,” Federal Reserve Chairman Alan Greenspan told Congress last week.
In other economic news, the Labor Department reported that new filings for jobless benefits fell last week by 18,000 to 338,000, another sign that layoffs are easing. The cost of workers’ wages and benefits grew by 1.1 percent in the first quarter, the biggest increase in a year, the department also said.
Economists are hopeful that recent improvements in the labor market will be built upon in the coming months. The economy, after months of sluggish payroll gains, added 308,000 jobs in March, the most in four years. Still, analysts said it will take time for the economy to recoup the net 1.84 million jobs lost since Bush took office.
Kerry points to those losses as evidence that the president’s economic policies are flawed. “We all know that America is at its best when it’s at work,” Kerry said Thursday.
Administration officials say Bush’s policies are working and that a stronger economy will spur job growth. “America’s economy is poised for long-term growth,” Treasury Secretary John Snow said.
Federal Reserve policy-makers, at their meeting Tuesday, are expected to hold a key short-term interest rate at 1 percent, the lowest since 1958. Some economists believe the Fed will begin to raise rates later this year. Greenspan last week said that the low rates must rise at some point to keep inflation in check, but he did not say when that might happen. An inflation gauge tied to GDP and favored by Greenspan showed that core prices – excluding food and energy – rose at a 2 percent rate in the first quarter.
, compared with a 1.2 percent growth in the previous quarter.
Even with the pickup, “I don’t think there is an imminent inflation problem,” said Tim O’Neill, chief economist at BMO Financial Group.
Higher prices did not stop consumers.
Their spending from January through March grew at an annual rate of 3.8 percent, following a 3.2 percent pace in the fourth quarter.
Consumers boosted spending on food, clothing and other nondurable items, and on services, but cut back on big-ticket goods such as cars and appliances.
Businesses increased spending on equipment and software at a 11.5 percent rate in the first quarter, a brisk pace but down from the 14.9 percent growth rate in the last quarter of 2003. Spending on new plants and other buildings remained weak, falling for the third straight quarter.
Spending by the federal government contributed to GDP growth in the first quarter, with defense spending rising at a rate of 15.1 percent, compared with a 3 percent growth rate in the previous quarter. The first quarter figure marked the biggest increase since the second quarter of 2003.
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On the Net:
GDP: http://www.commerce.gov/
AP-ES-04-29-04 1452EDT