- The Washington Times - Thursday, May 25, 2006


The economy showed even more pep than initially thought in the first quarter, zipping along at a 5.3 percent pace. But a less-energetic housing market and high energy prices now are taking out some of the oomph.

“I think we sort of had the last hurrah for the economy for a while,” said Nariman Behravesh, chief economist at Global Insight. “We aren’t going to see this kind of growth for a bit. We will see softening in the economy, but there’s no reason to be pessimistic.”

The figure released by the Commerce Department yesterday showed the gross domestic product (GDP) during the January-to-March quarter surpassing the 4.8 percent annual rate estimated a month ago. It marked the strongest growth spurt in 21/2 years. The upgrade mostly reflected stronger U.S. exports and better inventory building by businesses.

The GDP, which measures the value of all goods and services produced within the United States, totaled $11.39 trillion in the first quarter when annualized and adjusted for inflation.

President Bush, coping with his lowest job-approval ratings, said the GDP report provides evidence that “America’s economy is on the fast track.”

Some more forward-looking barometers, though, suggest that economic growth may be moderating.

The housing market, once a star economic performer, is losing some of its shine as mortgage rates march higher. Sales of previously owned homes fell 2 percent in April to a pace of 6.76 million units, the National Association of Realtors said in another report.

House prices posted the smallest increase in 41/2 years. The total number of unsold homes climbed to a record high of 3.38 million units.

“An orderly retrenchment of the market is what all of us have been hoping for, and that is what we are getting. At least for now,” said Joel Naroff of Naroff Economic Advisors, who was concerned by the backlog in unsold homes.

Economists predict economic growth in the April-to-June quarter probably slowed to a pace of about 3 percent to 3.5 percent, which still would be decent. The performance of the housing market and energy prices will play key roles in shaping the ultimate outcome.

The Federal Reserve is keeping close tabs on the extent to which a less-energetic housing market and high energy prices put a drag on economic activity. The Fed also is monitoring whether high energy prices feed into the costs of other goods and services and spread inflation throughout the economy.

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