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GDP soars, inflation sinks
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April 30, 1998: 9:31 a.m. ET
Best-of-both-worlds continues in halcyon U.S. economy; spending strong
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NEW YORK (CNNfn) - U.S. output soared in the first quarter at the same time a key inflationary gauge rose at its slowest rate in 34 years, soothing an anxious bond market and setting stocks toward a sharply higher open.
The U.S. real gross domestic product rose a stronger-than-expected 4.2 percent annual rate in the first quarter, up from 3.7 percent in the last quarter of 1997.
Wall Street economists had been expecting GDP to rise at a 3.3 percent annual rate. Despite the stronger-than-expected actual results, the Commerce Department said the implicit price deflator, a key benchmark of inflation, rose just 0.9 percent, its slowest rate since 1964.
Bonds and stock indexes shot up following the report. The 30-year Treasury bond rose 31/32 of a point in price, with the yield back down to 6.00 percent.
And the S&P futures index on the Globex trading system surged 12.4 points, suggesting the Dow Jones industrial average will gain about 100 points after the opening bell Thursday.
Meanwhile, the Employment Cost Index - which monitors compensation costs and is said to be watched closely by Federal Reserve Chairman Alan Greenspan - rose 0.7 percent in the first quarter.
That was short of analysts' expectations for the ECI to rise 1 percent, the same rate chalked up in the fourth quarter of last year.
Since March a year ago, the ECI has risen at just 3.3 percent, keeping fears of inflation at bay.
Michael Boldin, senior economist at the Conference Board, said the high GDP mixed with a low inflationary trend points to a U.S. economy that is getting more productive.
The GDP number, he said, "was much higher than anyone expected (but) we can't seem to get any bad inflation."
Despite the signs of cool inflation, U.S. consumers continued to buy, with the GDP's Consumer Spending Index rising a solid 5.7 percent in the first quarter.
Durable-goods orders soared 18.4 percent, a gain of 1.9 percent from the previous quarter.
But exports fell at a 3.4 percent rate, the sharpest drop in over four years. Imports grew 11.6 percent.
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