The economy grew at its hottest pace in 2 1/2 years in the opening quarter of 2006 but signs suggest it has cooled since then.
The Commerce Department reported Thursday that economic activity expanded at a 5.6 percent annual rate in the January-to-March period. The revised reading on gross domestic product was an even stronger showing than the 5.3 percent pace estimated for the quarter a month ago.
The new estimate – based on more complete information – matched economists’ forecasts.
The stronger GDP figure mostly reflected an improvement in the country’s trade deficit, which was much less of a drag than previously estimated.
Gross domestic product measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic fitness.
Fresher barometers, however, suggest the economy is slowing.
In a separate report, the Labor Department said new claims filed for unemployment benefits last week rose by 4,000 to 313,000 – a bit more than economists were expecting.
Analysts believe economic growth in the April-to-June quarter could turn out to be half the pace of the first quarter’s. They are predicting growth in the range of 2.5 percent to 3 percent. High energy prices and a more moderate housing market will play roles in the expected slowdown.
"I think the economy is moving from a boil to a simmer," said Richard Yamarone, economist at Argus Research.
If that turns out to be the case, the economy will have registered a seesaw-like pattern of growth in the last few quarters.
The opening quarter’s energetic performance followed a lethargic showing in the closing quarter of 2005 when the economy grew by a feeble 1.7 percent pace. Fallout from the Gulf Coast hurricanes, including high energy prices, prompted belt tightening by people and businesses.
Consumers and businesses came roaring back in the first quarter, though, a main reason why the overall economy performed so well.
Consumers boosted spending in the first quarter at a 5.1 percent pace, compared with a meager 0.9 percent growth rate in the fourth quarter.
Businesses ramped up spending on equipment and software at a brisk 14.8 percent pace, up from a 5 percent growth rate in the prior quarter.
And, companies’ profits continued to grow briskly. One measure of after-tax profits in the GDP report showed profits rose 13.8 percent in the first quarter. It was the second consecutive quarter of such strong growth.
The trade picture improved as imports didn’t grow as much as previously estimated. That meant the trade deficit shaved only 0.24 percentage point from GDP, compared with a 0.55 percentage-point reduction calculated a month ago.
In a third report, America’s net debtor position deteriorated last year, with foreigners owning $2.69 trillion more in U.S. assets such as stocks, bonds and real estate than Americans own in foreign assets. In 2004, the investment gap totaled $2.36 trillion.
An inflation gauge closely watched by the Fed showed that core prices – excluding food and energy – rose 2 percent in the first quarter. That was the same as last month’s estimate and was down from a 2.4 percent advance in the fourth quarter.
The inflation reading, however, was taken before oil prices shot up to a record high of $75.17 a barrel in late April. They are now hovering above $72 a barrel.
To fend off inflation, which has been creeping up, the Federal Reserve was expected to boost interest rates at the end of its two-day meeting Thursday. The Fed’s goal is to raise interest rates enough to keep inflation in check but not so much as to hurt economic activity.
Job growth lost momentum heading in the summer.
Employers boosted payrolls by just 75,000 in May, the fewest new jobs since October.
President Bush, coping with low job-approval ratings, hopes Goldman Sachs chief Henry Paulson – confirmed by the Senate on Wednesday to be the next treasury secretary – will breathe new life into the administration’s economic agenda.
Nariman Behravesh, chief economist at Global Insight, called the first quarter’s sizzling GDP performance "the economy’s last hurrah" before heading into a period of slower growth.