U.S. Economic Growth Revised Upward But Remains Tepid

By Agence France-Presse The U.S. economy plodded ahead at a 1.9% growth rate in the first quarter of 2003, the Commerce Department said May 29, revising upward its preliminary 1.6% growth estimate. The tepid pace in the January-to-March period for GDP was only a marginal improvement from the 1.4% rate of the fourth quarter of 2003. "On the whole, these revisions did nothing to alter the general picture of the economy in the first quarter," said economist Dana Johnson at financial institution Bank One. "It did not grow nearly fast enough to generate an increase in payrolls." Independent economist Joel Naroff said the first-quarter figures were affected by the run-up to the war in Iraq but illustrate that the war did not cause the economy to collapse as some had predicted. "Even during the quarter that we expected households to be the most conservative, we still got some modest growth," he noted. Consumers remained the key force in keeping the economy growing, with business investment faltering, the report showed. Consumer spending rose at a revised 2% rate in the first quarter, up from the initial estimate of a 1.4% gain. There was also an increase in the estimate of U.S. exports, but a downward revision to equipment and software and an upward revision to imports. The inflation picture remained relatively unchanged in the revised GDP data. The chain-weighted price index -- which adjusts for the quantities of inflated goods purchased -- showed a 2.5% increase, unchanged from the prior estimate. By one measure closely watched by economists, known as final sales -- GDP growth minus inventory adjustments -- the economy grew at a 2.4% rate in the first quarter, up from the previous estimate of a 2.1% gain. The report also showed that after-tax corporate profits rose 2.5% in the first quarter, down from a 4.1% increase in the fourth quarter. Naroff said the rise in profits is important for business confidence, which has been lacking so far in the tepid recovery. "With earnings and cash flow improving, the capacity to invest is expanding," Naroff said. A separate report by the U.S. Labor Department showed initial claims for regular unemployment benefits across the United States fell by 9,000 to a seasonally adjusted 424,000 for the week ended May 24. Despite the reported decline in claims, the overall level of claims continues to remain above the psychological benchmark of 400,000. "The implication is that people who are losing jobs are still having considerable difficulty in finding new work," said Johnson. "All in all, the claims data seem to be signaling only a marginal improvement in labor demand." Copyright Agence France-Presse, 2003