Economy’s Growth in First Quarter Revised Upward

The economy in the first three months of this year just keeps looking better and better.

It expanded at a 5.9% seasonally adjusted annual rate, the Commerce Department said Friday, the best since the fourth quarter of 1987, when the Federal Reserve Board pumped up growth with low interest rates to fight the aftermath of the Black Monday stock market crash.

Friday’s calculation represented an improvement over last month’s 5.8% estimate for the first quarter’s gross domestic product and April’s 5.6% figure.

Analysts said the economy probably won’t grow this strongly again for some time. They’re predicting second-quarter growth will register around a moderate 2% as consumers take a breather from their spending spree of early in the year.

On Wall Street, the Dow Jones industrial average ended 33 points higher at 7,687.72 as stocks continued this week’s roller-coaster ride. The blue chip index has been volatile, including a near 200-point drop that began the week. Bond yields fell.

The economy’s expected moderation appears to be coming just in time to dissuade the Fed from engineering a more jarring slowdown to keep inflation tame. Fed policymakers increased short-term interest rates by a quarter percentage point in late March, fearing that the breakneck growth would quickly use up the economy’s scant excess capacity and create inflationary shortages and delivery delays.

But they passed up a chance to raise rates in May, and most economists believe they’ll again vote to hold rates steady when they meet Tuesday and Wednesday and at a subsequent meeting in August.

The first-quarter economic boom, which built on robust growth of 3.8% in the final three months of 1996, was driven by consumers. Their spending represents about two-thirds of GDP, which measures the value of all goods and services produced within U.S. borders.

Consumer spending expanded at a 5.6% annual rate last quarter, the best in five years. That was supported by warmer-than-usual winter weather just as spending was hurt later by a cooler-than-usual spring in the Northeast.

In general, though, consumers are spending strongly because more of them have jobs. The unemployment rate in May was just 4.8%, the lowest in nearly 24 years. Surveys measuring consumer confidence put it at the highest level since men first walked on the moon in July 1969.

Housing construction and spending by businesses on new buildings and equipment also contributed to the big jump in GDP.

The principal source of the GDP’s latest upward revision was a reduction in imports.

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Gross Domestic Product

The GDP measures all the goods and services produced by workers and capital in the United States, regardless of ownership. Percentage change from previous quarter:

1997: +5.9%

* Source: Department of Commerce