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GDP remains robust
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May 25, 2000: 4:53 p.m. ET
Strong growth, modest inflation and solid corporate profits ring true in 1Q
By Staff Writer M. Corey Goldman
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NEW YORK (CNNfn) - The pace of the U.S. economy remained robust during the first three months of the year, though not as frenetic as in the fourth quarter, as consumers continued to spend and businesses racked up profits without trigging excessive increases in prices.
A separate, private industry report showed that existing home sales declined at a swifter-than-expected pace last month.
 Gross domestic product, the broadest measure of goods and services produced, advanced at a 5.4 percent pace in the first quarter, the Commerce Department said, which is the same pace as initially tallied a month ago and slightly above analysts' forecasts of a revision to a 5.2 percent gain. The GDP price deflator, a key inflation gauge, rose at a 2.7 percent annual rate, the same rate initially recorded a month ago and in line with economists' forecasts.
The numbers offered some solace to analysts and investors who had hoped that the Commerce Department's second, more detailed look at the pace of the economy would reveal slower growth; something the Federal Reserve has been trying to accomplish by raising short-term interest rates to discourage consumers and businesses from borrowing and spending.
A shade less frightening
At the same time, Wall Street took the numbers in stride, with investors choosing instead to focus on future expectations of slowing economic activity in the months ahead -- something that they hope will persuade Fed policy makers to put their inflation-fighting gun back into its holster. The Nasdaq composite index was up more than 80 points at midday, while the Dow Jones industrial average was slightly lower. Bonds were little changed.
"The Fed and the markets will see few signs of slowing in these figures, but little reason to fear an impending inflation acceleration either  ," said Sherry Cooper, chief economist with Toronto-based brokerage Nesbitt Burns Inc.
Robert Brusca, chief economist with Ecobest Consulting, told CNNfn that, while parts of the report did show signs of slowing -- consumer spending advanced at a revised 7.3 percent in the first quarter compared with the 8.3 percent jump initially reported in April -- the economy remains strong and likely will be reined in with more Fed rate increases, (524KB WAV) (524KB AIFF)
Indeed, slower consumer spending was offset by strong increases in economic activity elsewhere. Non-residential investment, which includes spending on things such as commercial construction and business equipment and software, rose at a whopping 25.2 percent annual rate in the first quarter, up from the initial hefty estimate of a 17.3 percent gain.
Corporate profits higher
Exports, meantime, rose at a 5.5 percent rate in the first quarter after the previous estimate showed a 0.2 percent drop. Net exports, which include the effect of imports, subtracted 1.1 percent from GDP compared with a 1.3 percent reduction in the first estimate. That resulted in a slightly smaller first-quarter trade deficit, which was reported last week as a record.
 With growth robust and labor costs under control due to productivity gains, profit margins widened, according to the report.
First-quarter after-tax corporate profits rose 4 percent after gaining 2.7 percent in the fourth quarter. That was the largest since a 7.4 percent increase in the first quarter of last year. Most of the gain came from non-financial companies, which added $32.6 billion in earnings compared with $26.3 billion in the fourth quarter. Financial corporate profits gained $600 million after rising $19.5 billion in the fourth quarter.
Personal consumption also gained in the first quarter, though at a slightly slower pace than first reported. The Commerce Department's personal consumption expenditures price index, a measure of inflation tied to consumer spending, rose at a 3.1 percent annual pace, down from the first estimate of a 3.2 percent increase.
Existing home sales slump
The government releases a total of three estimates of each quarter's GDP and subsequent numbers as more information becomes available. The final estimate on first-quarter growth will be released by the Commerce Department on June 29.
 In a separate report, the National Association of Realtors said existing home sales declined 6.2 percent to a 4.88 million annual rate in April, below the revised 5.20 million rate recorded in March though slightly higher than the 4.84 million pace expected by economists.
"With last week's Fed tightening, mortgage rates have continued to rise, so that further declines in housing activity are likely over the balance of the year," said Steven Wood, an economist with Banc of America Securities in San Francisco. "Nevertheless, robust labor markets and rising incomes have helped sustain housing at a relatively high level."
Another report Thursday indicated that the robust labor market is starting to cool off. The U.S. Labor Department said first-time claims for state unemployment benefits rose 6,000 to 284,000 in the week ended May 20. That followed a 20,000 drop the week earlier and left the average for claims this year at 278,000, down from last year's average of 298,000. 
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