Economy bounds forward, for now, as firms restock

GDP is accelerating, but other reports this week show weakness. Economists see 3.7 percent growth for year.

The United States economy is getting up to speed.

In fact, numbers released today are likely to show an economy at full throttle, with the nation's gross domestic product (GDP) growing at a 4.5 to 5.5 percent pace in the first three months of the year.

That's an impressive showing for an economy that was shrinking, or just barely growing, for much of last year. For American workers, the boomlet should create enough new jobs to stabilize and maybe soon reduce unemployment, which has risen to 5.7 percent.

But beyond one euphoric quarter, the deeper question is what the "cruising speed" will be for the rest of the year.

Most economists anticipate a modest slowdown ahead in the pace of the recovery. Already in March, one of the months to be included in today's GDP report, worrisome weakness was evident as home sales and durable-goods orders fell.

Economists surveyed by Reuters foresee the US economy growing by 3.7 percent for the year. That's a full percentage point higher than they were predicting in a survey three months ago, but lower than typical rebounds from recession.

"The degree of strengthening in final demand [for goods and services] over coming quarters, an essential element in sustained economic expansion, is still uncertain," Federal Reserve Chairman Alan Greenspan told the Joint Economic Committee of Congress last week.

On the plus side, that comment was seen by stock market investors as a happy signal that the Fed won't raise interest rates at its next policy meeting May 7, and possibly not when the policymakers get together in June.

But beleaguered businesses, many still struggling to return profits to their bottom lines, want to see a solid economic rebound alongside low interest rates.

Expecting a rise in demand, businesses have been restocking bare shelves lately – and the record buildup of inventories is one reason GDP numbers are picking up.

So far, consumer spending hasn't flagged.

DESPITE the recession, American civilian workers saw their incomes rise 3.9 percent in the 12 months ended in March, the Bureau of Labor Statistics reported yesterday. That rising income was one reason they kept spending at a healthy clip during the slowdown. Many economists see the steadiness of consumer spending, even after Sept. 11, as a key reason for the mildness of the slump last year.

But in recent months, the pace of wage growth has slowed a bit. Other numbers released this week also suggest some hesitation in the economy. Orders to factories for big-ticket goods totaled $173.4 billion in March, off 0.6 percent from February. New home sales dropped 3.1 percent, following a husky 6.2 percent rise in February.

Nonetheless, talk among economists of a "double dip" back into recession has faded.

For one thing, the Fed has been holding interest rates at a 40-year low, despite some concerns that inflation will pick up.

Widespread Wall Street speculation holds that Mr. Greenspan would like to protect his legacy as head of the Fed by keeping the recovery sizzling.

"Greenspan probably sees the finish line for him as Fed chairman," says Paul Kasriel, economic research director of Northern Trust Co. in Chicago. "He is 76 years old. And his term is officially up in 2004."

Moreover, the first President Bush blamed Greenspan and the Fed for a slow "jobless recovery" in 1992 that lost him his reelection. The thesis of Fed watchers is that the Fed chairman, himself a Republican, will not want to repeat that episode with George W. Bush.

Greenspan also has grown increasingly optimistic about the capacity for new information technology to boost productivity – which potentially could allow faster economic growth without inflationary pressure on prices.

Victor Zarnowitz, an economist on the private-sector committee that officially dated last year's recession as beginning in March., notes that the slump "may well have been over by the end of last year – and maybe not."

"Official" or not, the current recovery certainly looks better than economists had expected not long ago. In early January, the consensus prediction of economists called for a mere 1 percent growth rate for the first quarter.

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