Economy Grew at 2.2% Rate in 1st Quarter

The economy grew moderately earlier this year, the government said Friday, but some analysts say the most recent figures could persuade the Federal Reserve Board that it needs to raise interest rates later this summer.

Figures on job growth and consumer spending suggest the economy has been growing faster lately than the 2.2% annualized rate indicated in the Commerce Department Report released Friday. Thus, analysts contend, it is just a matter of when the central bank will raise rates in an effort to check inflation. The policymaking Federal Open Market Committee will meet next week, but there is widespread doubt that the panel will decide to raise interest rates then.

“The question is whether they have enough information to move now, or do they wait to see if the economy is going to slow down before the next meeting in August?” said Lynn Reaser, chief economist at Barnett Banks Inc. in Jacksonville, Fla.

Other economists, however, predict no Fed rate action soon.

“It’s pretty clear now that the economy is not getting overheated,” said William Dunkelberg of the National Federation of Independent Business and economics professors at Temple University in Philadelphia. “That means the Fed is under no compunction to raise rates.”

The 2.2% annualized rate for the first quarter is slower than the estimates of 2.8% in April and 2.3% in May. A big factor in the latest revision in the gross domestic product was a revision in the decline in business inventories--to $18.6 billion rather than the $22.2-billion decline reported earlier.

It was the first inventory decline in four years. Although a decline subtracts from the GDP, it can set the stage for faster growth, especially if consumer sales are rising as manufacturers step up production to meet greater demand.

An inflation index tied to the GDP rose 2.4% at an annualized rate in the first quarter, a bit faster than the 2.1% advance for the last three months of 1995. The increase was attributed to rising energy prices.

The GDP report shows consumer spending surged at an unrevised 3.6% annualized rate, up from 1.2% in the fourth quarter. Business investment, a major source of strength for the last three years, shot up at a 12.4% rate.