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GDP revised up
But stronger reading on nation's 1Q economic growth falls just short of Wall Street forecasts.
May 26, 2005: 10:41 AM EDT

NEW YORK (CNN/Money) - The U.S. economy grew at a faster pace in the first quarter than earlier estimates, the government reported Thursday, but the stronger reading fell a bit short of Wall Street expectations.

The gross domestic product, the broad measure of the nation's economic activity, rose at an annual 3.5 percent rate in the first quarter, compared to the 3.1 percent gain reported in an earlier report. Economists surveyed by had a consensus forecast that the GDP would be revised up to 3.6 percent growth, while Reuters found a range of estimates from 3.2 to 4.0 percent growth.

A smaller-than-expected trade gap in March was one of the major reasons for the upward revision in GDP. Purchases of imported goods and services reduce the GDP, while exports, which grew to record levels in March, increase the measure of the nation's economic activity.

Even with the upward revision, the first-quarter growth was slower than the 3.8 percent gain reported in the fourth quarter. Still, despite disappointing some on Wall Street, the report was a solid one, said John Silvia, chief economist with Wachovia Securities. In fact he said he expects future quarters this year to show even more slowing of the economy.

"I think the slowdown is still in the cards," he said. "We're probably looking at 3.5 to 3.25 (percent growth) in the second quarter, and 3.0 to 3.25 (percent) in the second half. Part of what drove the first quarter number was an increase in inventories, and a lot of that was unintentional. You've already seen businesses starting to scale back production to reduce that inventory.

"I don't see a reacceleration of this economy at all, unless there is an external factor," he said.

But Citigroup Senior Economist Steven Wieting said he does think the economy has a chance to see better growth in the second half. He said the first quarter report showed surprising strength, given the rise in oil and energy prices.

"I think the peak impact from energy was the March-April period. You can find points of weakness and points of strength. If we can avoid another energy price hit, our full-year forecast is still for 3.7 percent growth."

The report made no change in one of its closely watched measures of inflation, as prices paid by individuals for items, excluding food and energy, increased 2.2 percent in the quarter. That's one of the key measures of inflation watched by the Federal Reserve policy makers.

U.S. stocks opened higher as the good news on inflation helped to overcome any disappointment that the report wasn't as strong as hoped for by some.

For more on the strength of the U.S. economy and what it means to you, click here.  Top of page


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