Raised GDP Estimate Shows 3.8% Growth Rate

Even in the face of high energy prices, the economy turned in a solid performance in the first quarter of 2005, suggesting the expansion should stay on firm footing.

The gross domestic product, the broadest measure of economic standing, increased at an annual rate of 3.8% from January through March, according to revised figures released by the Commerce Department on Wednesday.

That compared with a 3.5% growth rate estimated a month ago and matched the showing over the final three months of 2004.

GDP measures the value of all goods and services produced within the United States. In the first quarter, it climbed to $11.1 trillion on an annualized basis, adjusted for inflation.

Brisk spending on housing projects, more investment by business in equipment and software, and a trade deficit that was less of a drag on economic growth all played a role in the higher first-quarter GDP reading.

“The economy is performing well. Sturdy growth with modest inflation,” said Mark Zandi, chief economist at Economy.com.

That is especially heartening, given the high energy prices, he said. “It illustrates the resilience of the economy and the durability of the current economic expansion,” Zandi said.

Oil prices hit records in March and April and set a closing high of $60.54 a barrel Monday. Prices have retreated somewhat since.

Zandi estimated that the economy was growing at a rate of 3.5% or better in the current April-to-June quarter. Other economists, however, predict that it will be below 3%.

Federal Reserve Chairman Alan Greenspan told Congress this month that the economy in general “seems to be on a reasonably firm footing,” but he also raised concerns about the housing market.

Spending on housing projects grew at an 11.5% rate in the first quarter, compared with 3.4% in the fourth quarter. That was the biggest increase since the second quarter of 2004.

Greenspan said it did not appear likely that a national housing bubble, which could pop and send prices tumbling, would develop. But he worried about “froth” in local markets.

Low mortgage rates, which have powered record-high home sales for four years in a row, are keeping housing activity buoyant.

The Bush administration pointed to the latest GDP report as evidence that economic activity is improving. “The economy is showing solid and sustained growth and job creation,” White House Press Secretary Scott McClellan said.

The unemployment rate fell to a low of 5.1% in May, but payroll growth slowed.