First-Quarter U.S. GDP Revised Upward

A month before the slated release of its first estimate of U.S. GDP performance during the second calendar quarter of this year, the U.S. Commerce Department on June 29 offered its third and final read on GDP growth in the first quarter of 2005. Matching the fourth-quarter rate in 2004, the U.S. economy grew at an annual rate of 3.8%, higher than its earlier figures of 3.1% and 3.5%, the department said. Higher than previously reported business fixed investment, particularly in equipment and software, accounted in part for the higher final GDP figure for the first quarter of 2005.

The market value of GDP in the first quarter -- the so-called current-dollar GDP -- was at a seasonally adjusted annual mark of $12.192 trillion.

However, Merrill Lynch & Co., New York, continues to believe that the first quarter "will mark the high-point on growth in 2005." Inventories are the issue. Although it was revised downward in the latest report from Commerce, inventory accumulation in the first quarter was still "outsized," contends Merrill. "The unwinding of this unplanned stockpiling will exert a significant drag on economic growth in the second quarter," judges the financial firm.

Inflation, as measured by the Federal Reserve's favored index of personal income expenditures minus food and fuel -- rose at a seasonally adjusted annual rate of 2% in the first quarter, the highest it has been since the first quarter of 2004. That makes it virtually certain that the Federal Open Market Committee will boost the target for the influential federal funds rate by 25 basis points to 3.25% at the close of a two-day meeting in Washington, D.C., on June 30.

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