- The Washington Times - Friday, April 28, 2006

On the heels of good news earlier this month from the Labor Department on employment, the Commerce Department reported Friday that the U.S. economy rebounded strongly during the January-March period following its Katrina-related pause in the fourth quarter. The annualized growth rate of gross domestic product, which represents the total output of goods and services, accelerated from 1.7 percent (October-December) to 4.8 percent during the first quarter. Final sales advanced at an even more impressive 5.4 percent annual rate last quarter. That compares very favorably to the fourth quarter’s 0.2 percent decline in final sales.

GDP’s first-quarter growth rate of 4.8 percent was the largest increase in two and a half years. During the past four quarters, including the October-December slowdown, the U.S. economy grew by 3.5 percent.

The first-quarter rebound was broad-based. Personal consumption expenditures, which represent 70 percent of the economy, increased by 5.5 percent. Total exports increased by 12.1 percent, while the export of goods jumped by nearly 18 percent. (Total imports, which are about 55 percent higher than total exports, increased by 13 percent; and the resulting trade deficit chopped nearly 1 percentage point from the economy’s overall growth rate.)

The increases in the various sectors of business investment were perhaps the most welcome news. Overall, business investment advanced at a 14.3 percent annual rate during the first quarter. Except for the second quarter of 2000, it was the fastest rate of increase since 1997. In the doldrums since 2000, business investment in structures, such as factories, warehouses and power plants, increased by 8.6 percent during the first quarter. Meanwhile, business spending on equipment and software jumped 16.4 percent, the fastest rise in any quarter in six years.

While output accelerated in the first quarter, consumers faced decelerating inflationary pressures. After rising by an average annualized rate of 3.3 percent during the previous three quarters, the GDP price index for personal consumption expenditures increased at a 2 percent rate during the first quarter.

As noted above, the impressive growth in U.S. economic output during the first quarter closely tracked equally impressive employment numbers. Not only did nonfarm payrolls expand by nearly 600,000 workers during the first quarter; but the unemployment rate fell to 4.7 percent in March. On April 7, the day the Department of Labor reported that the March jobless rate had dipped to 4.7 percent, the White House released a fact sheet noting that the unemployment rate is now “lower than the average of the 1960s, 1970s, 1980s and 1990s.” Unfortunately for the president (and the Republican-controlled Congress), an economic growth rate of 4.8 percent and an unemployment rate of 4.7 percent are being overwhelmed by $3-per-gallon gasoline.

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