GDP rises an anemic 1.6 percent for 1st quarter

By Peter G. Gosselin
Los Angeles Times

WASHINGTON — The U.S. economy grew at an anemic 1.6 percent pace during the first three months of the year as war, weather and other worries curbed spending by consumers and companies, the Commerce Department said yesterday.

The department said first-quarter growth of the gross domestic product — one of the broadest gauges of the economy's performance — was only slightly better than the 1.4 percent growth rate of the final three months of last year, and extended a run of economic uncertainty that has dogged the nation since it slipped into recession two years ago.

Of particular concern to analysts was that much of the growth in the most recent period was the product of a statistical fluke — a decline in imports, which usually signals economic weakness but is treated as boosting GDP. Absent the imports slowdown, growth in the January-through-March quarter would have been a mere 0.7 percent.

"There wasn't much good news here," said S. Nicholas Perna, a Ridgefield, Conn., economic consultant. "About the best you can say is that the numbers were positive instead of negative."

Economic optimists brushed aside the latest growth figures as backward-looking and said the economy shows signs of perking up with the quick U.S. victory in Iraq and the coming of spring.

They pointed to three other reports yesterday that showed that U.S. home sales have remained strong and consumer confidence, which plummeted at the start of the Iraq war, is rebounding.

The government said sales of new homes jumped 7.3 percent in March to an annual rate of 1.01 million units. And while sales of existing homes dipped by 5.6 percent during the month, they continued to hum along at a strong 5.53-million unit annual pace. The housing market has been buoyed by four-decade low interest rates.

Separately, a University of Michigan survey found that consumers shook off some of their war-stoked doubts in April, sending the school's index of consumer sentiment rocketing from a 10-year-low 77.6 in March to 86.

Analysts said a pickup in confidence is crucial if consumers are to continue buying at the pace they have been and, in the process, bolster the economy. Despite the substantial size of the April improvement, survey director Richard Curtin cautioned that "the gain was only half as large as following the 1991 victory in Iraq and only reversed the losses recorded since the start of 2003."

Investors took the new growth numbers badly and reacted by driving down stock prices.

Analysts said investors fear the economy is weaker than they had thought, will take longer to fully recover and won't produce the jump in corporate profits they are betting on.

The first quarter's 1.6 percent growth rate was somewhat weaker than the roughly 2 percent pace economists had predicted.

Besides the boost from declining imports, the economy drew strength from continued strong housing construction and consumer purchases of clothes, food and other smaller items, which offset a drop in sales of big-ticket items such as cars.

Housing construction raced ahead at a 12 percent annual rate fueled by the lowest mortgage rates since the early 1960s.

Consumer spending rose at a 1.4 percent pace. That was slower than the 1.7 percent pace of the previous quarter, a fact that worries some analysts who fear consumers, who have been the economy's mainstay for more than two years, will finally begin slowing their purchases. But it was a positive number, nonetheless.