Growth May Be Slowing
By Nell Henderson
Washington Post Staff Writer
Friday, May 28, 2004; Page E01
The U.S. economy grew at a healthy 4.4 percent annual rate in the first three months of the year, but growth appears to have slowed more recently as consumers and businesses deal with rising inflation and interest rates, economists said yesterday.
The first-quarter growth rate reported yesterday by the Commerce Department was better than the 4.2 percent seasonally adjusted annual pace initially estimated, and faster than the solid 4.1 percent rate posted in the final quarter of last year. The department revises the estimates as additional data become available, providing a snapshot of the economy that becomes clearer over time.
But weaker-than-expected vehicle sales this year and a drop in other April retail sales signal a slowdown in consumer spending in the current quarter, and softer overall economic growth as well, said Gary Bigg, an economist at Banc of America Securities LLC, in a note to clients yesterday.
The recent drags on consumer spending include "the pronounced rise in energy costs," as well as higher general inflation and interest rates, Peter E. Kretzmer, senior economist at Bank of America Corp., said Tuesday.
Orders to factories for big-ticket durable goods fell a sharp 2.9 percent in April, the Commerce Department said Wednesday.
Meanwhile, the amount of help-wanted advertising in major U.S. newspapers fell in April, the second monthly drop in a row, according to figures released yesterday by the Conference Board, a business research group. The board's help-wanted index slipped to 38 in April, from 39 in March and 40 in February.
Banc of America is now forecasting that the nation's gross domestic product, or output of goods and services, will rise at about a 4 percent annual rate in the April-through-June period, down from the 5 percent rate it was forecasting a month ago. And, Kretzmer said, "the forecast remains sensitive to oil price developments."
Macroeconomic Advisers, a St. Louis forecasting firm, this week shaved its estimate of second-quarter growth to a 4.2 percent annual rate from 4.3 percent.
The economy would still be expanding strongly at such a pace, and none of the recent signs of a slowing have altered analysts' expectations that the Federal Reserve will move soon, perhaps next month, to raise its benchmark overnight interest rate. Other long-term interest rates that are determined by the financial markets, such as mortgage rates, have started rising in anticipation of the Fed's likely action.
Some Fed critics have said the central bank should have started raising rates already because of the recent rise in inflation.
Consumer prices, excluding volatile food and energy prices, rose 1.7 percent at a seasonally adjusted annual rate in the first quarter, according to a Commerce Department measure tied to GDP that is closely followed by the Fed.
That is a relatively low inflation rate, and within the comfort range of many Fed officials, but the quarterly figure has moved steadily upward since touching a low of 0.8 percent in the April-through-June period of last year.
Corporate profits have soared, up 31.6 percent in the first quarter of this year compared with the same period last year. That's the fastest growth in 20 years, according to John E. Silvia, chief economist for Wachovia Economics Group. However, Commerce Department figures show the pace of that profit growth slowed in each of the past four quarters.
Fed Chairman Alan Greenspan has said recently that fat profit margins should help temper inflation by giving businesses plenty of room to raise wages for workers without raising the prices charged to consumers.
© 2004 The Washington Post Company