GDP Up 3.5 Percent; Jobless Claims Rise

Federal Reserve policy-makers, who believed the economic slowdown in March was probably "transitory," have expressed more concern about the prospects of rising inflation.

To prevent inflation from becoming a problem, the Fed has boosted short-term interest rates eight times _ each in modest quarter-point increments _ since last June. Analysts predict the Fed will raise rates again at its next meeting at the end of June and into much of this year.

An inflation gauge tied to the GDP report and closely monitored by the Fed showed prices _ excluding food and energy _ rising at a rate of 2.2 percent in the first quarter. While that was the same as previously estimated for the quarter, it did represent a pickup from the 1.7 percent rate of increase in the fourth quarter.

High energy prices have forced many economists to lower their projections for economic growth. The economy in the current April-to-June quarter is expected to expand anywhere from a 2.8 percent to 3.5 percent pace, according to some analysts' estimates before the release of Thursday's GDP report. Some earlier forecasts had put growth for the quarter closer to a 4 percent pace.

Oil prices soared into record territory in March and hit a new closing high of $57.27 a barrel at the beginning of April. Prices have eased since and hover $50 a barrel.

Consumer spending in the first quarter grew at a 3.6 percent pace. That was up a bit from the government's initial estimate of a 3.5 percent growth rate but down from the fourth quarter's 4.2 percent pace.

Business investment in equipment and software increased at a 5.6 percent pace in the first quarter. That was down from a previous estimate of a 6.9 percent growth rate and marked a big deceleration from the hot 18.4 percent pace of spending seen in the fourth quarter.

One measure of after-tax profits in the GDP report showed profit growth losing ground in the first quarter. They grew by 1 percent, compared with a hefty 12.5 percent increase in the fourth quarter.

Housing activity, meanwhile, powered ahead in the first quarter, stoked by still fairly low mortgage rates.

Spending on residential projects increased at a brisk 8.8 percent rate in the first quarter. That exceeded an initial estimate of a 5.7 percent pace of spending for the quarter and was up from a 3.4 percent growth rate logged in the fourth quarter.

The trade deficit didn't weigh as much on economic growth in the first quarter as previously estimated. The deficit shaved nearly 0.7 percentage point off GDP in the first quarter, compared with an initially estimated 1.49 percentage-points reduction.