U.S. Economic Growth Revised Upward

The nation’s economy was substantially stronger during the first three months of 1998 than had previously been thought--growing at its fastest pace in almost two years--the government reported Thursday. But analysts said the surge was unlikely to last.

Commerce Department figures showed that the gross domestic product--the value of goods and services that the United States produces--grew at an annual rate of 5.4% in the January-March quarter, rather than at the 4.8% pace estimated four weeks ago.

The revision, the largest in more than 10 years, was the result of data collected after the initial estimate was prepared. It mainly reflected higher-than-expected stockpiling of inventories by businesses and a smaller impact from a falloff in exports.

The 5.4% pace marked the economy’s fastest growth rate since the second three months of 1996, when output grew at a 6% annual rate. The growth rate for the final quarter of 1997 was 3.7%.

Nevertheless, analysts said the huge buildup of inventories suggested that the economy would slow somewhat during the spring and summer as retailers sold their stockpiles before ordering more goods.

The Federal Reserve Board has been hoping that slower economic growth would help avert new inflation stemming from today’s tight labor market. Many analysts, concerned that a new round of wage hikes will revive inflationary pressures if the economy continues growing faster than 2.5%, expect the Fed to raise interest rates this summer if the economy does not cool.

Robert G. Dederick, chief economist for Northern Trust Co. in Chicago, said the chances were “very, very good” that the economy would slow in the April-June quarter.

Dana Johnson, economist at First Chicago Bank, agreed. “I don’t think this number is going to set off alarm bells,” he said. “It’s still the same sort of mixed view that the Fed’s been looking at for the past several months.”

The Commerce Department’s report showed that about half the revision stemmed from the higher-than-expected inventory buildup, while most of the remainder was attributed to the trade deficit not deteriorating as sharply as had been predicted.

Analysts cautioned, however, that the trade figures were skewed by difficulties encountered in adjusting the figures to offset seasonal variations, and do not suggest that the Asian crisis will not have an impact on America’s trade picture.

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Gross Domestic Product

Percentage change from previous quarter, annualized rate:

1st quarter: +5.4%

Source: Commerce Department