First-Quarter U.S. GDP Growth Unlikely To Repeat

By John S. McClenahen In the current calendar quarter as well as in this year's third and fourth quarters, the U.S. economy is unlikely to match the 5.8% annual rate of inflation-adjusted GDP growth that it posted from January through March. More than half of first-quarter growth was a result of companies restocking their inventories. "The first quarter will likely be the high-water mark for GDP growth this year," says Jerry J. Jasinowski, president of the Washington, D.C.-based National Association of Manufacturers. "Now that the inventory bounce is out of the way and with a modest recovery expected in business investment and exports, slower growth will occur throughout the rest of the year." Even Merrill Lynch & Co., the most bullish of major economic forecasters with a 6% projection for the first quarter, foresees a growth rate no higher than 5% the rest of this year -- and that number not until the fourth quarter. For the current quarter, the New York-based securities firm figures that GDP is growing at a 4% annual rate and it projects a 4.2% annual rate for the third quarter. Consumer spending, which accounts for about two-thirds of the economy, will be a major factor in the amount of actual GDP growth during the rest of this year. Consumer spending rose at a healthy 3.5% rate during the first quarter. However, the University of Michigan's index of consumer sentiment declined to 93 this month from 95.7 in March, suggesting people may do a little more looking than buying in the months ahead. Capital investment also bears close watching. Business investment in equipment and software actually fell at a 0.5% annual rate in the first quarter. "For a sustainable recovery, we need to see stronger growth in investment spending," stresses Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, an Arlington, Va.-based business policy research group. The U.S. Commerce Department's Bureau of Economic Analysis is slated to publish a revised estimate of first-quarter 2002 GDP growth on May 24, when more complete data are likely to be available.

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