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GDP rises 4.5% in 1Q
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April 30, 1999: 11:00 a.m. ET
Though down from 6% in 4Q, growth rate is unexpectedly high
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NEW YORK (CNNfn) - U.S. gross domestic product rose at a surprisingly strong 4.5 percent pace during the first three months of the year, the Commerce Department said Friday, a sign that the booming American economy continues to roar ahead.
Analysts had predicted a rise in the annual rate of only 3.3 percent for the quarter.
"It's as good as it gets," David Resler, chief economist at Nomura Securities, said of the latest numbers. "You've got low inflation, minimal wage pressure, great productivity, booming growth and strong demand."
The fourth-quarter GDP came in at 6 percent, the highest since the second quarter of 1996 and a reflection of a buoyant American economy that steadily grew in 1998 despite economic problems abroad.
For the latest quarter, GDP growth would have been even higher -- as much as 7 percent -- were it not for problems on the international front. Exports faltered and imports rose from financially troubled Asia and Latin America.
The Commerce Department said consumer spending rose at a booming 6.7 percent annual rate for the quarter. That's the biggest jump in personal consumption spending since a 7.2 percent increase in the first quarter of 1988.
Much of that prosperity comes from the healthy real estate market, which is giving American home sellers about $150 billion annually to channel into purchases of cars, second homes and travel, said James Smith, chief economist for the National Association of Realtors.
But the data also show that consumers were borrowing heavily to keep spending. The Commerce Department said personal savings shrank at a 0.5 percent rate, or by $30.9 billion, in the first quarter after being flat in the previous period. It was the weakest performance for the quarterly savings rate since the government began compiling the figure in 1946.
The GDP price deflator, which gauges inflation, also was much higher than expected, coming in at 1.4 percent, compared with analysts' predictions of 0.8 percent and a fourth-quarter reading of 0.8 percent. That's the biggest increase in nearly two years.
Some Wall Street economists said that figure may trigger inflation fears.
The data represent "a good news, bad news story," said Sherry Cooper, chief economist at Nesbitt Burns Securities. The high GDP growth rate shows the economy is strong and likely will boost stocks, but the higher price deflator means the Federal Reserve may be more likely to tighten interest rates, thus pressuring bond traders, she said.
"Given the strength of the economy I would have to think this would be seen as bad news in the bond market," she said.
The report triggered immediate activity in the bond market. The benchmark 30-year Treasury was off almost a full point, trading down 29/32 for a yield of 5.587 Friday morning, compared with a yield of 5.49 percent before the data were released.
But the price index, while higher than the previous period, still is quite modest, said Richard Rippe, chief economist at Prudential Securities.
"Some people may worry about that, but 1.4 percent is a very low rate of price rise," he said. "It's just that the 0.8 percent (in the fourth quarter) was extraordinarily low. It was unlikely that we could continue that pace."
The government releases three estimates of quarterly GDP, with the following two revisions of first-quarter figures expected in May and June. 
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Department of Commerce
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