GDP Matches Advance Number but Tops Expectations

Updated from 9:26 a.m. EDT

The U.S. economy entered its 112th month of expansion, though retail spending dropped noticeably. The overall gross domestic product number indicates that the Federal Reserve is likely to continue its campaign of raising interest rates in the coming months.

The Commerce Department released on Thursday a GDP number of 5.4% that was unchanged from the advance number that came out on April 27. Economists had been looking for the broad measure of economic growth to come in at an annualized pace of 5.2%.

Thursday's revised GDP report is based on more data than the advance report. The final revision of the GDP report, based on yet more information, will be disclosed on June 29.

The economy grew at a 7.3% annual pace in the fourth quarter of 1999, and at a 4.1% overall pace in 1999.

"Clearly, the big picture hasn't changed at all," said Anthony Karydakis, senior financial economist at Banc One Capital Markets. "Today's report is not of any material importance to the Fed."

The gross domestic purchase index, another inflation measure in the GDP report, also remained the same, increasing at a 3.2% pace, compared with a 2.3% pace in the fourth quarter of 1999.

Indeed, the report merely confirms the Fed's efforts to rein in the economy. The Federal Reserve has increased interest rates six times since June 1999, including a rise of half a percentage point last week.

"The economy is still strong, and the Fed will raise rates again," said Marilyn Schaja, money market economist at Donaldson, Lufkin and Jenrette. "But it's inconclusive whether they'll raise rates again in June or wait until August."

Though the broad GDP number was not revised, most of the individual components were, "but net-net it was a wash as they offset each other fully," Karydakis added.

Retail spending, or consumption expenditures, rose at a 7.5% annual rate, down from the 8.3% annualized pace in the advance report.

There was also a slight downward revision to the report's measure of consumer prices, the personal consumption expenditures index, to 3.1% from 3.2% in the advance report, because of revisions to medical costs. That is still up sharply from the 2.5% pace in the fourth quarter.

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