The US economy raced ahead in the first quarter at the fastest pace in more than two years as consumers spent solidly and a year-long trend of sharp cutbacks in business inventories showed signs of tapering off, the government said today.
The latest report from the US Commerce Department showed the economy snapping back sharply from one of the mildest recessions in history but it may not fully resolve lingering concerns about the strength of economic growth going forward.
US gross domestic product, measuring the amount of goods and services produced within US borders, bolted upward at a 5.8 per cent annual rate in the first three months of this year -- a full percentage point higher than the forecasts of private economists. The latest growth in GDP was the strongest since the economy soared 8.3 per cent in the final quarter of 1999.
The dollar rose after the GDP number and inflation-sensitive bonds trimmed their gains.
However, economists said the pace of growth should moderate in coming quarters. The first-quarter gain follows growth of 1.7 per cent in the fourth quarter of 2001 and a contraction of 1.3 per cent in the third quarter.
An elite panel of academic economists at the National Bureau of Economic Research has said the US economy entered a recession in March 2001 but the NBER has not yet ruled on when the recession ended. Many private economists have pegged the end of 2001 as a time when the economy appeared to turn the corner to recovery and the latest GDP figures should add fuel to that assumption.
The single-biggest factor bolstering GDP in the first quarter was an abrupt slowdown in the pace at which firms pared back inventories of unsold goods. Firms have slashed their inventories for five straight quarters but in the first quarter they did so at a much slower rate than previously.
Production can go up when companies begin relying less heavily on existing inventories to meet customer demand. Businesses cleared out $36.2 billion worth of inventories in the first three months of this year, a much smaller reduction than the $119.3 billion they wiped out in the fourth quarter.
Consumer spending grew a healthy 3.5 per cent. An 8 per cent drop in spending on durable goods such as cars was offset by an 8.4 per cent surge in purchases of non-durable items like clothes. The gain in non-durable goods was the biggest since an 8.9 jump in the second quarter of 1975.