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U.S. economic growth steady in first quarter

The economy turned in a better — but still subpar — performance in the first three months of this year, mostly spurred by stronger sales of U.S. products overseas.
/ Source: The Associated Press

The economy turned in a better — but still subpar — performance in the first three months of this year, mostly spurred by stronger sales of U.S. products overseas.

The 1 percent annualized increase in gross domestic product, announced by the Commerce Department on Thursday, marked a slight improvement from the government’s previous estimate of 0.9 percent growth for the January-to-March quarter. And, it showed the economy logging stronger growth than the feeble 0.6 percent pace registered in the final three months of last year.

Still, the first quarter’s performance pointed to a fragile economy, shaken by housing, credit and financial debacles. That has made people and businesses more cautious in their spending and investment, restraining overall economic activity. More normal growth would be along the lines of a 2.5 percent to 3 percent pace, analysts said.

Gross domestic product, or GDP, measures the value of all goods and services produced within the United States and is the best barometer of the nation’s economic fitness. The latest GDP reading matched economists’ forecasts.

In another report, the Labor Department said the number of new applications filed for unemployment benefits held steady over the last week at 384,000. The figure, higher than analysts were expecting, points to a struggling labor market.

With inflation concerns growing, the Federal Reserve on Wednesday ended a nearly yearlong string of interest rate reductions to bolster the economy.

Fed policymakers expressed hope that its powerful series of rate reductions will spur better growth over time. They noted that economic activity was continuing to expand, partly reflecting “some firming in household spending.”

The government’s tax rebates, the centerpiece of a $168 billion stimulus package, have helped to energize consumer spending in recent months.

If lucky, the Fed will be able to leave rates where they are for a while so that the economy can gain traction. However, some believe the Fed might be forced to boost rates later this year to fend off inflation.

Others think the Fed won’t start to push up rates until next year. Either way, the Fed’s next move on rates is likely to be up — not down, analysts said. The timing will hinge on how energy and food prices, as well as other inflation barometers, behave in the months ahead.

There’s been a lot of talk about whether the country has fallen into a recession. The new GDP statistics did not meet what analysts consider one definition of a recession — two straight quarters of shrinking economic activity. But that didn’t happen in the last recession in 2001, either. And other barometers — nationwide job losses and shriveling paychecks — have pointed to a possible downturn.

Some analysts believe the economy in the current April-to-June quarter is growing at a pace of just over 1 percent. With consumers recently showing an improved appetite to spend, some analysts now think the second quarter will perform better than earlier estimates for little, if any, growth for the quarter. At one point, some thought the economy might actually contract.

Fallout from the housing crisis continued to be a big drag on overall economic growth: builders slashed spending on housing projects in the first quarter by 24.6 percent on an annualized basis. That wasn’t as deep, though, as the 25.2 percent annualized cut made in the fourth quarter.

Consumer spending, a major shaper of national economic activity, grew at a pace of just 1.1 percent in the first quarter. That was a bit better than the previous estimate but still was the slowest growth rate in that category since the second quarter of 2001, when the country was in a recession.

Businesses also showed caution in spending on such things as equipment and software and investments in commercial construction projects.

One bright spot keeping the economy going in the first quarter was export growth. Exports grew at a 5.4 percent pace, much stronger than previously estimated, but down from a 6.5 percent growth rate in the prior quarter. The falling value of the U.S. dollar has made exports less expensive to foreign buyers. With exports rising and imports falling, the trade picture improved.

Some analysts predict that slowdowns elsewhere in the world, such as Europe and Japan, will cool future demand for U.S. exports. That would mean exports could be less of a bracing force for the economy in coming quarters.

An inflation measure linked to the GDP report showed that prices grew at a rate of 3.6 percent in the first quarter. That was up slightly from a previous estimate but down from a 3.9 percent pace in the fourth quarter.

Stripping out food and energy prices, “core” inflation increased at rate of 2.3 percent in the first quarter. That also was up a bit from the old estimate but marked a moderation from the prior quarter’s 2.5 percent pace. This core figure, however, is still outside the Fed’s comfort zone. The upper level of the Fed’s inflation tolerance is 2 percent.