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GDP up, home sales fall
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June 29, 2000: 12:30 p.m. ET
U.S. economy grew at 5.5% rate; decline in home sales suggests slowing
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - The U.S. economy grew a bit faster than previously thought in the first quarter, but more recent numbers showing a drop in home sales indicate that the Federal Reserve's interest rate increases may be starting to temper growth, government reports released Thursday showed.
 In its final tally of first-quarter gross domestic product, the broadest measure of the economy, the Commerce Department said that GDP grew at a 5.5 percent annual pace, slightly faster than its tally of 5.4 percent a month ago. Wall Street forecasts were for an unchanged reading of 5.4 percent.
A key measure of inflation, the price deflator, rose at a 3 percent annual rate, above the 2.7 percent pace initially recorded and economists' forecasts.
At the same time, a separate report showing new home sales declined for a second straight month in May raised optimism among analysts that the economy, about to enter its record 112th month of growth, may be starting to slow. Growth rang in at a 7.3 percent annual rate in the fourth quarter, the fastest pace in more than 16 years. The first estimate for second-quarter growth will be released by the Commerce Department on July 28.
"We already thought it was very, very strong and consumer spending has been a big factor, but the underlying tone seems to indicate that overall growth is tapering off," Wayne Angell, chief economist of Bear Stearns and a former Fed governor, told CNNfn's Before Hours. Angell does not expect the Fed to raise rates again this year as consumer spending tapers off.
Consumer spending surges
Whether the U.S. economy is beginning to respond to the Fed's six rate increases implemented during the past year has been the primary focus of both Wall Street and officials at the Fed in Washington, who have watched the economy chug along at a stronger-than-usual pace for more than four years. According to economic theory, growth in the 3-percent-to-3.5-percent range is typically considered an acceptable pace that won't spur inflation.
 Evidence that U.S. consumers are beginning to respond to the Fed's series of rate increases have recently begun to show up in the numbers -- in declining job creation, in slower retail sales, in subdued manufacturing output and, most recently, in the housing sector, where mortgage rates almost 2 percent higher than a year ago have deterred consumers from buying homes.
So far, consumer spending has shown little signs of abating, even with the Fed's series of rate increases. Consumer spending grew at a 7.7 percent rate in the quarter, according to Commerce, up from an earlier reading of 7.5 percent -- the strongest showing since the second quarter of 1983.
"The future path for monetary policy depends critically on at least a flattening out of interest-sensitive spending," said Sherry Cooper, chief economist with brokerage BMO Nesbitt Burns Inc. "It is touch-and-go whether the softness in interest-sensitive spending is sufficient to be consistent with the required degree of overall economic slowing."
Exports, imports revised higher
Within the report, exports rose at a 6.2 percent rate in the first quarter after the previous estimate showed a 5.5 percent increase. Imports of goods and services grew at a revised 11.7 percent annual rate, previously reported as a 12.7 percent gain. Fourth-quarter imports advanced at an 8.7 percent rate.
 Government spending, meantime, declined at a swifter pace than previously estimated, with expenditures dropping a revised 1.5 percent annual pace in the first quarter compared with the previously reported 1.2 percent decline. That followed a 9.3 percent increase in spending in the fourth quarter.
The personal consumption expenditures price index, a measure of inflation closely watched by the Fed and tied to consumer spending, rose at a 3.5 percent annual rate, up from the last estimate of 3.1 percent and the largest gain since it rose at the same pace in the third quarter of 1994. The revisions reflected higher brokerage commissions and investment counseling charges.
Final sales rose at a 7.1 percent rate in the first quarter, up from an earlier reading of 6.9 percent. Adjusted for inflation, GDP totaled an annualized $9.158 trillion in the first quarter, compared with an annualized $9.037 trillion in the fourth quarter. The government releases three estimates of each quarter's GDP as more information becomes available.
Homes sales slip again
In a separate report, the Commerce Department said that sales of new homes throughout the U.S. fell for a second straight month in May, the government reported Thursday, a reflection of higher interest rates deterring buyers from entering the real estate market.
 The Commerce Department said the number of single-family homes sold in May fell 0.2 percent to a seasonally adjusted annual rate of 875,000 units -- the slowest pace since last September -- from a downwardly revised 877,000-unit pace in April. Sales rates for March and February also were revised lower.
"Although the level of sales is still relatively high, the solid growth of the past three years has been arrested, helping the Fed's efforts to slow the pace of economic growth," said Steven Wood, an economist with Banc of America Securities in San Francisco. "However, mortgage rates have declined over the last six weeks, so further substantial weakness may not be forthcoming."
In another report, the Labor Department reported that the number of Americans filing new claims for unemployment benefits rose to 306,000 in the week ended June 24 from a revised 304,000 the prior week. Economists surveyed by Briefing.com had forecast jobless claims of 295,000 for the period. 
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