- The Washington Times - Thursday, May 29, 2003


The United States is still trying to snap out of its economic lethargy. The economy grew a bit faster in the first three months of 2003 than first thought, but the advance was still considered mediocre.

Gross domestic product — the total value of goods and services produced within the United States — increased at an annual rate of 1.9 percent in the January-to-March quarter, a slightly better showing than the 1.6 percent growth rate estimated a month ago, the Commerce Department reported yesterday.

While economists prefer seeing the economy expanding, rather than contracting, they said economic activity needs to crank up to a growth rate of around 3 percent or higher to get back into a more normal growth pattern and get companies to really start hiring.

“Until that happens, it won’t feel much like an economic recovery to the average person,” said Carl Tannenbaum, chief economist at LaSalle Bank.

Federal Reserve Chairman Alan Greenspan, in a Capitol Hill appearance last week, predicted that economic growth in the current April-June quarter “is going to be quite soft.”

Private economists don’t believe the economy in the current quarter will be much better than the first quarter, and it could turn out to be worse. Forecasts for second-quarter economic growth range anywhere from a 1 percent rate to a rate of more than 2 percent.

Economists, however, are hopeful the economy will pick up more speed in the second half of this year, with some predicting a growth rate of around 4 percent.

“We think the recent rise in stock prices is already foreshadowing this revival,”said Maury Harris, UBS Warburg’s chief economist.

One of the main reasons the first-quarter GDP reading was revised upward was that consumers — the main force keeping the economy going — opened their pocketbooks and wallets a bit wider than previously thought.

Still, the country was feeling the strains of war jitters and bad weather in the first quarter, factors that weighed on an already plodding economy, economists said. In the final quarter of 2002, economic growth clocked in at a poky 1.4 percent rate.

Separately, new claims for unemployment benefits dropped last week by a seasonally adjusted 9,000, to 424,000, the Labor Department said.

But even with the decline, claims were above the 400,000 mark, a level associated with a weak job market.

In an attempt to energize the economy, President Bush Wednesday signed into law a 10-year, $350 billion package of tax rebates, lower tax rates, new breaks for businesses and investors and aid to states.

Some economists believe the Fed will cut a key interest rate, now at a 41-year low of 1.25 percent, at its next meeting June 24-25. Others believe the Fed will hold the rate steady.

In another report, Freddie Mac, the mortgage giant, said rates on 30-year mortgages dropped to a new low of 5.31 percent this week — good news for the housing market, one of the economy’s few bright spots.

Consumer spending in the first quarter increased at an annual rate of 2 percent.

That was better than the government’s first estimate of a 1.4 percent growth rate for the quarter and marked an improvement from the fourth quarter’s 1.7 percent growth rate.

Businesses, meanwhile, have largely restrained spending, a major factor preventing the economy from returning to full economic speed.

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