- The Washington Times - Friday, May 30, 2008


The economy logged slightly better - but weak - growth in the first quarter, spurred by improved sales of U.S. products overseas. While that’s heartening, the country is far from being out of the woods.

In fact, a closer look behind the 0.9 percent increase in the gross domestic product (GDP) during the January-to-March period revealed much caution on the part of consumers, who have been clobbered by the housing, credit and financial debacles.

“What emerges is a picture of an economy that’s gasping for air,” said Bernard Baumohl, managing director of the Economic Outlook Group.

Consumers - major shapers of overall activity and thus the economy’s lifeblood - boosted their spending at the slowest pace since the last recession, in 2001. And their decreased appetite for shopping sprees reduced sales of foreign-made imports here, which also helped narrow the trade deficit.

The new GDP reading, released yesterday by the Commerce Department, is an improvement from the government’s initial first-quarter estimate as well as the economy’s performance in the final quarter of last year. Both periods were pegged at a 0.6 percent growth rate.

However, economists still consider the 0.9 percent growth rate sub par. More normal growth would be along the lines of a 2.5 percent to 3 percent pace, they said. GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic health.

The new statistics did not meet what analysts consider one definition of recession - two straight quarters of a shrinking GDP. But that didn’t happen in the last recession, either. And, other barometers - nationwide job losses and shrinking paychecks - still point to a possible downturn, analysts said.

Another report showed more people signing up for jobless benefits last week, a fresh sign of softness in the employment market. The Labor Department said new applications filed for unemployment insurance rose by 4,000 to reach 372,000.

Fallout from the housing crisis continued to be a big drag on overall economic growth; builders slashed spending on housing projects by 25.5 percent, on an annualized basis, in the first quarter. That was the most in 27 years.

Consumers are feeling the pressure. They increased spending at just a 1 percent pace in the first quarter, the slowest growth rate in that category since the second quarter of 2001. Consumers are pulling back as high energy and food prices leave them with less money to spend on other things. Falling home values are making many homeowners feel less wealthy and less inclined to spend. And the credit crunch has made it harder to finance big-ticket purchases.

When exports and business’ inventories are excluded and imports are considered, economic activity actually contracted at a 0.1 percent pace in the first quarter, the worst showing in more than 16 years. That figure underscores consumers’ reluctance to spend vigorously.

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