Washington, DC, Apr. 25--The U.S. economy, frozen at the start of the year by war anxieties, still managed to grow at an annual rate of 1.6% in the first three months, according to the Commerce Department.
The first quarter increase in output of the gross domestic product, the broadest measure of economic health, was slightly better than the 1.4% rate of growth turned in during the fourth quarter of last year.
The strength in the first three months came from a narrowing of the nation's trade deficit, strong housing construction and consumer purchases of clothing, food and other non-durable items, which offset a further drop in sales of cars and other durable goods.
In the weeks leading up to the war, consumer and business confidence plunged as fears increased over what a U.S. invasion of Iraq might do in terms of disrupting global oil supplies or generating new terrorist attacks. Economic activity came to a near standstill in February as the country was also hit by severe winter snowstorms.
Economists began to worry that the tepid recovery from the 2001 recession might be in danger of stalling out altogether with some predicting that the first quarter GDP number might turn negative. By one rule of thumb, a recession occurs when GDP posts two consecutive negative quarters.
However, with the small 1.6% GDP growth rate in the first quarter, those fears will be lessened, especially given the fact that the Iraq war was concluded quickly without serious damage to Iraq's oil fields.
Economists caution that there are still threats, especially if a new wave of job layoffs causes consumers to suddenly halt their spending.
An inflation gauge that is tied to the GDP report showed that prices in the first quarter were rising at an annual rate of 3.6%, compared to an increase of just 1.8% in the fourth quarter, a jump that reflected the big increase in energy costs in the weeks prior to the beginning of the war.
However, excluding food and energy, prices in the first quarter were rising at an annual rate of 2%, a more modest pickup from the 1.5% rate in the fourth quarter.
The past two quarters, with growth of 1.6% in the first quarter and 1.4% in the previous quarter, both showed a pronounced slowdown. They dropped from a 4% growth rate turned in during the third quarter last year.
GDP growth turned positive in the final three months of 2001 after three negative quarters of growth marking the country's first recession in a decade.
In the first quarter, consumer spending rose at an annual rate of 1.4%, down just slightly from the 1.7% pace of the fourth quarter last year. This reflected continued strength in consumer purchases of non-durable goods, which were rising at a 4.2% annual rate, offsetting a 1.1% rate of decline in the purchase of big ticket items such as cars.
Housing construction, powered by the lowest mortgage rates since the early 60s, was another standout performer during the first three months of the year, growing at an annual rate of 12%.
This strength helped to limit the damage from a big drop in non-residential investment, which was falling at an annual rate of 4.2%. This decline reflected the fact that companies worried about the fallout from the war put their investment plans on hold.
Another factor helping keep growth positive in the first quarter was a sharp narrowing in the trade deficit reflecting a big drop in imports. This contributed more than half of the quarter's total growth.
Government spending, which grew at an annual rate of 4.6% in the fourth quarter, rose by a more modest rate of 0.9% in the first quarter. This increase reflected a 2.6% rate of growth in federal spending which offset a 0.1% drop in spending at the state and local level, where lawmakers have been cutting services to deal with severe budget shortfalls.
