First-quarter GDP rises a strong 4.8 percent
By Daryl Delano -- Industrial Distribution, 8/1/1998
The Commerce Department's "preliminary" report on first-quarter 1998 GDP showed that strong growth continued through the early months of this year.The government estimates that overall GDP grew at a 4.8% annualized rate during January-March 1998, despite an absolute decline in the export of goods and services and in government spending. And the news about inflation was exceptionally favorable, as the price index for gross domestic purchases was unchanged between the fourth quarter of last year and the first quarter of 1998. It's been more than 40 years since we've seen such a low measure of inflation at the total economy (GDP) level.
The first-quarter GDP increase was fueled by strong gains in consumer spending, home building, and capital spending for new equipment. Consumer purchases rose at a 6.1% rate during the first quarter of this year, more than twice the 2.5% growth rate recorded for October-December 1997. Durable goods purchases soared to a 15.9% annualized growth rate during the first three months of this year after a scant 1.9% gain in the fourth quarter of 1997. Nondurable goods purchases increased 6.5% in the first quarter, and services expenditure growth increased at a moderate 4% rate.
Residential investment (spending for new homes and remodeling projects) increased by a 16.1% annualized rate during the first quarter. Low interest rates, high consumer confidence, and good family income growth have kept this sector much stronger for longer than anyone had anticipated at this time last year. Residential investment growth has averaged an annualized 8.8% during the past four quarters.
And, although the preliminary GDP report showed that business investment in new buildings declined for the second consecutive quarter, spending for new equipment surged to a 27.5% annualized gain. Investment in new or retrofitted nonresidential buildings has declined during four of the past five quarters, largely because of weakness in the overbuilt industrial and retail sectors. However, new equipment purchases bounced back from a slight decline in the fourth quarter of 1997.
The strong first quarter GDP report came in above consensus expectations. Inventory investment continued strong (a decline was widely anticipated) and the unusually sharp decline in exports simply wasn't enough to offset bullish consumer and business spending patterns. It's now clear that, in the short-run, the Asian crisis has actually been a boon for the U.S. economy.
Weakness abroad has kept interest rates and energy prices low and the competition from foreign imports has restrained domestic inflation. These benefits should begin to dissipate in the months ahead, however, and the negative effects of Asia's problems should become more evident and lead to slower gains in GDP.
Capital investment, home building, and consumer purchases fueled the first quarter's strong growth. I
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