The Economy

U.S. GDP Growth Below Expectations

April 28, 2005

In the first of three estimates of first-quarter 2005 GDP that it will publish during the next two months, the U.S. Commerce Department reported on April 28 the U.S. economy grew at an inflation-adjusted annual rate of 3.1% from January through March. That figure is three-tenths of a percentage point below the 3.4% economists generally expected and a full percentage point under the 4.1% rate the most optimistic were forecasting.

The U.S. economy grew at a 3.8% annual rate during the final quarter of 2004. During the first three months of this year, domestic production grew at its slowest rate in two years, with business spending on equipment and software rising by only 6.9%, notes David Huether, chief economist for the National Association of Manufacturers, Washington, D.C.

Chairman Alan Greenspan and the 11 other voting members of the Federal Open Market Committee will be looking at the GDP details, including business investment and U.S. international trade, when they meet on Tuesday, May 3, to decide what to do about interest rates. They'll also be looking at inflation. The GDP price deflator, one of the basic measures of inflation, was at a seasonally adjusted annual rate of 3.2% in the first quarter of this year, the highest it has been since the second quarter of 2004, when it was also 3.2%.

"The Fed can either rein-in inflation by continuing to push up interest rates or accommodate the impact of high gas prices on consumers by backing off interest rate increases," says Peter Morici, a professor the University of Maryland's Smith School of Business in College Park. "If, as expected, the Fed pushes interest rates higher, the impact on inflation will be limited," Morici predicts. "Inflation is largely caused by higher oil prices, as other commodity markets are loosening. Oil prices are determined in global markets, and Fed policy has only a limited impact on demand," he explains. "Higher interest rates will do more to push up [U.S.] unemployment than contain inflation."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.