GDP Surges Amid Other Growth Signs
Fresh government reports released Friday showed the U.S. economy bubbling ahead with considerable momentum after a vigorous entry into 1997, possibly boosting chances of more interest-rate hikes to cool the pace of growth.
In its final look at last year, the Commerce Department reported that the U.S. economy, as measured by the gross domestic product, was growing at a robust 3.8% rate as 1996 ended, far above the 2.1% pace turned in during the third quarter.
And in more recent data, the government said that new homes were sold at a seasonally adjusted annual rate of 811,000 units in February, following an even stronger 817,000-unit pace in January. It marked the first time in nearly 11 years that new homes had been sold above the 800,0000-mark for two consecutive months.
The data on new homes followed a report that sales of existing homes shot up 9% in February. That news Thursday triggered a 140-point plunge on Wall Street as investors grew worried that the economy is growing faster than previously believed and that this will force the Federal Reserve Board to follow up its Tuesday quarter-point increase in interest rates with several more rate hikes.
In addition to the steep plunge in stocks, bond prices took a nose dive as well on Thursday, pushing the yield on the bellwether 30-year Treasury bond to 7.08%, the highest level in six months.
“The basic message from the new reports is that the economy is growing too fast for comfort,” said Robert Dederick, chief economic consultant at Northern Trust Co. in Chicago.
U.S. financial markets were closed Friday.
Many analysts believe the economy finished the first quarter this year growing at around 3.5%, far above the 2% to 2.5% the Fed has signaled as its target for growth during this stage of the expansion, which entered its seventh year this month.
Economists said this rise in long-term interest rates would eventually act to slow housing regardless of what the Fed does to the short-term rates it controls.
The strength in the fourth-quarter GDP came from a sharp rebound in consumer demand, which rose at a 3.4% pace compared with 0.5% in the third quarter. Also, the country’s trade deficit showed a dramatic improvement, but this is expected to be short-lived. The deficit in January hit a record high.
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Gross Domestic Product
Percent change from previous quarter, at an annual rate:
1996 4th Quarter: 3.8%Source: Commerce Department
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New-Home Sales
Seasonally adjusted annual rate, in thousands of units: February 1997: 811
Source: Commerce Department
