GDP Grew 5.5% in 1Q

The nation's economy grew only marginally stronger than previous government estimates in the first quarter, a final government report showed Thursday, but price inflation accelerated more than previously thought.

In its final revision to its first-quarter gross domestic product figures, the Commerce Department reported that the economy grew at a 5.5% annual rate in the first three months of the year, compared with an earlier estimate of 5.4%.

The data indicate that the economy slowed slightly in the first quarter from the frantic 7.3% annual pace of late 1999, but that growth remained well above the 2.5% trend of recent decades.

Yet the data also showed more pronounced price pressures. The report's broad measure of consumer price inflation grew at an annual rate of 3.5% in the first quarter, the highest rate in nearly six years, compared with an earlier estimate of 3.1%. That rate of inflation, largely a result of a surge in oil and energy prices, marks a big pickup from the fourth quarter, when prices rose at annual rate of only 2.5%.

The Commerce Department said the nation's output in the first quarter was buoyed by strong consumer spending and continuing gains in business investment.

Growth also got a boost from strength in after-tax corporate profits, which grew 5.8% in the first quarter, compared with 2.7% in the fourth quarter of 1999.

Growth in the gross domestic product in the first quarter was held back by Americans' heavy appetite for imported goods, reflected in the nation's huge trade deficit. Trade deficits drag on GDP because U.S. dollars spent on foreign goods do not create domestic wealth.

Higher prices did little to deter Americans' strong spending habits in the first quarter. Personal consumption expenditures, a measure of consumer spending, surged 7.7% in the first quarter, from a 5.9% rate in the fourth quarter.

Growth in consumer spending, which accounts for roughly two-thirds of the nation's GDP, has been a primary driver of the record-long economic expansion. Fearful that demand in the U.S. is sharply outstripping supply, the Federal Reserve has raised short-term interest rates six times in the past year to try and slow consumer and business spending and bring supply and demand closer to balance.

A slowdown in retail sales and housing activity in the second quarter prompted Fed policymakers to refrain from raising interest rates at its most recent meeting Tuesday and Wednesday. But the Fed warned that the recent signs of economic slowdown could be temporary, as is often seen in the second quarter, and warned that strong labor markets and the still-strong economy continue to create a risk of inflation.