US economy posts 5.6% growth in Q1, fastest in two years

WASHINGTON (AFP) – US economic output roared 5.6 percent higher in the first quarter of 2002, the government said Friday, slower than first estimated but still the fastest pace in nearly two years.

Consumer spending and business investment – the two critical components still needed to provide a sustainable recovery – were weaker than earlier thought, the data showed.

But companies were fighting their way out of the doldrums, posting their first improvement in after-tax profits in a year and a half, the Commerce Department said.

The gross domestic product rise disappointed economists, who had expected an upgrade to the first estimate of 5.8 percent annualized growth. But their recovery scenario survived mostly intact.

"On the whole, we find this report a little on the disappointing side relative to the advance report," said HSBC economist Ian Morris.

"Although it takes a little shine off the recovery profile, it does not derail the story," he added.

After-tax corporate profits edged up 0.9 percent in the first quarter – the first increase in one and a half years – after diving 10.6 percent in the fourth quarter.

"Underneath the surface, the stirrings of a profit fight-back are evolving," Morris said.

First-quarter economic growth was revised lower after fresh data showed business and consumer spending weaker than first thought.

Among the data coming in worse than earlier estimated, spending on big-ticket items such as cars and washing machines plunged 9.6 percent, and business investment tumbled 8.2 percent.

Also slightly weaker than first believed was federal government expenditure which rose 6.7 percent, and consumer spending – which accounts for two-thirds of US economic activity – expanded 3.2 percent.

"The difference is trivial at this pace of growth but does reflect more complete data on a spectacular quarter," said a report by Citigroup/Salomon Smith Barney.

"The downward revisions occurred in consumer durables, business investment and in government spending, all offsetting slightly higher numbers for inventories and trade.

Economic growth was powered largely by businesses reducing their reliance on stockpiles.

Inventories – which had plunged $119.3 billion in the fourth quarter of 2001 – fell a revised $25.7 billion in the first quarter.

Overall, it was the fastest annualized expansion in GDP since the second quarter of 2000.

The outlook for the April-June quarter was bright, analysts said.

"While second quarter growth is expected to be a somewhat slower 4.5 percent, final demand should be stronger as consumer and investment spending picks up and inventories give less of a thrust," Merrill Lynch economist Gerald Cohen said.

Separate data showed the housing sector still strong, with new home sales climbing 1.0 percent in April from the previous month to a seasonally adjusted annual rate of 915,000 units.

"Home sales were strong throughout the recession, so while they will not provide the impetus to growth that normally occurs early in an expansion they will remain robust," Cohen said.

The US economy grew 1.7 percent in the fourth quarter of last year, bouncing back from a contraction of 1.3 percent in the third quarter, when the world economy was hit by the Sept. 11 terrorist attacks.