Economy Picks Up Growth in First Quarter

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By JEANNINE AVERSA, Associated Press Writer

WASHINGTON - The economy grew at a 4.4 percent annual rate in the first quarter of this year, slightly faster than previously thought and fresh evidence that the recovery possessed good momentum as it headed into the current quarter.

The increase in gross domestic product from January through March reported by the Commerce Department (news - web sites) on Thursday marked an improvement from both the 4.2 percent pace first estimated for the quarter a month ago and the 4.1 percent growth rate registered in the final quarter of 2003.

The GDP (news - web sites) measures the value of all goods and services produced within the United States. While the latest reading was just shy of the 4.5 percent pace that some analysts were forecasting, it nevertheless represented a solid performance.

Although consumers and the federal government did their part to support the economy in the first quarter, the better reading on GDP for the period in large part reflected stronger investment by businesses to build up inventories, a good sign that companies are more confident about the economy's prospects.

From April to June, the economy is expected to grow at a rate in the range of 4.5 percent to 5 percent, according to some analysts.

The economy has been among the issues that President Bush (news - web sites) and presumptive Democratic nominee John Kerry (news - web sites) have jousted over in the presidential campaign.

The country has lost a net 1.5 million jobs since Bush took office in January 2001, something Kerry points to as evidence that the president's economic policies aren't working. But Bush says they are, and that the best way to create jobs is to make the economy stronger.

The nation's payrolls, which had been posting lackluster gains, expanded by a sizable 288,000 in April on top of a hefty increase in March, leading some economists to believe that the long awaited for recovery in the labor market was finally coming about.

With the economy growing solidly and inflation beginning to stir, a growing number of economists believe the Federal Reserve (news - web sites) may order its first rate increase in more than four years next month. Some, however, believe a rate rise won't come until August or later. The main short-term rate used by the Fed to influence economic activity has been at a 46-year low of 1 percent.

An inflation gauge tied to the GDP report and closely watched by Fed Chairman Alan Greenspan (news - web sites) showed that core prices — excluding food and energy — rose at a 1.7 percent rate in the first quarter. Although that was lower than the 2 percent pace first estimated, it still represented a pickup from the 1.2 percent growth rate in the previous quarter.

Consumers, whose spending accounts for roughly two-thirds of all economic activity in the United States, increased their spending in the first quarter at a 3.9 percent rate. That was slightly stronger than previously estimated and up from a 3.2 percent growth rate in the fourth quarter.

Businesses boosted spending on equipment and software in the first quarter at a 9.8 percent rate. While that was less brisk than first estimated and down from a 14.9 percent growth rate in the fourth quarter, it still represented a sizable advance.

Stronger inventory-building by businesses in the first quarter added 0.75 percentage point to the GDP, compared with a 0.27 percentage-point gain first estimated. That marked the largest contribution to GDP from inventories since the third quarter of 2002 and was a key reason why first-quarter GDP was revised upward.

Other reasons: stronger growth in exports during the quarter and a smaller cutback in spending by state and local governments.

Military spending by the federal government grew at a 13.2 percent pace in the first quarter, down from the previous estimate but a big pickup from the previous quarter's 3 percent growth rate.

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