Economy Grew More Slowly in 1st Quarter Than First Thought By REUTERS
Filed at 1:11 p.m. ET
WASHINGTON (Reuters) - The U.S. economy grew much more slowly than previously thought in the first quarter and inflation was higher, a government report showed on Friday.
Separate reports, however, showed consumer sentiment rebounding in June and a jump in sales of existing homes in May -- likely fueled by a rush to lock in low interest rates before a probable Federal Reserve rate hike next week.
The Commerce Department surprised economists with a downward revision to first-quarter gross domestic product, cutting economic growth to a 3.9 percent annual rate from the 4.4 percent reported a month ago. Wall Street analysts had not expected the Commerce Department to change the GDP estimate.
While 3.9 percent is still a solid pace, the revision cut GDP -- which measures all output within U.S. borders -- to below the 4.1 percent seen in the last quarter of 2004.
The government also ratcheted up a key gauge of inflation in the GDP report, confirming an acceleration in price rises that has fueled expectations the Federal Reserve will begin raising interest rates from their 1958 lows next week to head off inflation.
The core price index for consumer spending -- a favorite of Fed Chairman Alan Greenspan that cuts out volatile food and energy prices -- gained at an annual rate of 2.0 percent in the quarter, a bump up from the 1.7 percent reported a month ago.
``It is a bit surprising that inflation was worse and consumption was up less,'' said Mark Vitner, senior economist at Wachovia Securities.
He said the worst in the run-up in inflation may already be past, however, with stronger real growth and lower inflation likely in the second half of the year, and should not prompt an aggressive run of interest-rate hikes. (...)
2002 redux?
October 31, 2003 OP-ED COLUMNIST
A Big Quarter By PAUL KRUGMAN The Commerce Department announces very good growth during the previous quarter. Many observers declare the economy's troubles over. And the administration's supporters claim that the economy's turnaround validates its policies.
That's what happened 18 months ago, when a preliminary estimate put first-quarter 2002 growth at 5.8 percent. That was later revised down to 5.0. More important, growth in the next quarter slumped to 1.3 percent, and we now know that the economy wasn't really on the mend: after that brief spurt, the nation proceeded to lose another 600,000 jobs.
The same story unfolded in the third quarter of 2002, when growth rose to 4 percent, and the economy actually gained 200,000 jobs. But growth slipped back down to 1.4 percent, and job losses resume