Economy Growth Boils, but May Be Cooling

Homes are seen for sale Monday, June 26, 2006, in Berkeley. Calif. Sales of existing homes fell for the third time in the past five months in May, with the weakness led by a big drop in demand in the Northeast. (AP Photo/Ben Margot) (Ben Margot - AP)

Consumers boosted spending in the first quarter at a 5.1 percent pace, compared with a meager 0.9 percent growth rate in the fourth quarter.

Businesses ramped up spending on equipment and software at a brisk 14.8 percent pace, up from a 5 percent growth rate in the prior quarter.

And, companies' profits continued to grow briskly. One measure of after-tax profits in the GDP report showed profits rose 13.8 percent in the first quarter. It was the second consecutive quarter of such strong growth.

The trade picture improved as imports didn't grow as much as previously estimated. That meant the trade deficit shaved only 0.24 percentage point from GDP, compared with a 0.55 percentage-point reduction calculated a month ago.

In a third report, America's net debtor position deteriorated last year, with foreigners owning $2.69 trillion more in U.S. assets such as stocks, bonds and real estate than Americans own in foreign assets. In 2004, the investment gap totaled $2.36 trillion.

An inflation gauge closely watched by the Fed showed that core prices _ excluding food and energy _ rose 2 percent in the first quarter. That was the same as last month's estimate and was down from a 2.4 percent advance in the fourth quarter.

The inflation reading, however, was taken before oil prices shot up to a record high of $75.17 a barrel in late April. They are now hovering above $72 a barrel.

To fend off inflation, which has been creeping up, the Federal Reserve was expected to boost interest rates at the end of its two-day meeting Thursday. The Fed's goal is to raise interest rates enough to keep inflation in check but not so much as to hurt economic activity.

Job growth lost momentum heading in the summer.

Employers boosted payrolls by just 75,000 in May, the fewest new jobs since October.

President Bush, coping with low job-approval ratings, hopes Goldman Sachs chief Henry Paulson _ confirmed by the Senate on Wednesday to be the next treasury secretary _ will breathe new life into the administration's economic agenda.

Nariman Behravesh, chief economist at Global Insight, called the first quarter's sizzling GDP performance "the economy's last hurrah" before heading into a period of slower growth.

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On the Net:

GDP: http://www.commerce.gov/

Jobless claims: http://www.doleta.gov/