Gdp Soars 5.6 Percent First-Quarter Economic Growth Was Highest In 10 Years
American consumers went on a spending spree in the first quarter, pushing economic growth to a 10-year high. But hints emerged that the torrid pace soon would subside to more normal levels.
Wall Street took that as a good sign for inflation and the stock market extended its rally, with the Dow Jones average of 30 industrial stocks topping 7,000 points for the first time in a month.
The economy exploded at a seasonally adjusted 5.6 percent annual rate, the highest since the last quarter of 1987, the Commerce Department said Wednesday. That comes on top of robust 3.8 percent growth in the last three months of 1996.
Consumer spending, representing about two-thirds of economic activity, raced ahead at a 6.4 percent rate in the January-March quarter, nearly double the 3.4 percent pace of the previous quarter.
“Income is rising. Sentiment is high. Unemployment is the lowest in years. Times are good for American consumers,” said economist Allen Sinai of Primark Decision Economics.
President Clinton claimed credit for the surge in the gross domestic product, the sum of all goods and services produced in the United States. He said his administration’s efforts to reduce the budget deficit “have sparked a remarkable period of economic expansion and job creation.”
The GDP gain translated into an increase of $96.1 billion, bringing the economy’s inflation-adjusted output to an annual rate of $7.09 trillion. An inventory buildup, representing $29 billion of the over-all increase, could be a problem if consumer demand suddenly drops.
More likely it means factories will have a bit less catching up to do in the second quarter, said economist Lynn Reaser of Barnett Banks Inc. in Jacksonville, Fla.
“There probably is not much of an overhang at this point, but inventory building is unlikely to give the economy the thrust that we saw in the first quarter,” she said.
Roller-coaster volatility has rocked Wall Street for almost two months now. Strong economic reports have triggered plunges, by supporting the belief the Federal Reserve would embark on a long campaign of interest-rate increases to quell inflationary pressures. Upswings have followed evidence that inflation is being contained.
At this point, many analysts believe Fed policy-makers will raise rates by a quarter of a percentage point when they meet next on May 20, though some think the central bank will wait until its July 1-2 gathering. The first increase in more than a year came March 25.
In the first quarter, trade was among the few detractions from growth. A surge in imports at a 21.9 percent annual rate overpowered an increase in exports at an 8.1 percent rate. The dollar, at 4-1/2-year highs against major currencies, is making foreign goods a bargain for American consumers.
The only other negative was a slight decline in government spending. A drop in military spending more than offset growth in state, local and domestic federal spending.
Residential construction advanced at a 5.5 percent rate, and investment in capital goods such as factory equipment rose at a 12.9 percent rate. Nonresidential construction grew at a 9.5 percent rate.