Revised 1Q GDP misses forecast

Further evidence economy is slowing

home sales fall 2%

May 26, 2006|By JAMES P. MILLER AND MARY UMBERGER | JAMES P. MILLER AND MARY UMBERGER,CHICAGO TRIBUNE

Providing further evidence of the U.S. economy's slowing momentum, federal officials revised yesterday first-quarter gross domestic product growth upward by a lower-than-expected amount.

The slightly disappointing GDP data, combined with a separate report that showed a continuing decline in existing-home sales, may play a role in the Federal Reserve's pending decision on whether to pause its long series of interest-rate increases. The Fed's rate-setting committee next meets June 28 and 29.

A month ago, the Commerce Department originally reported that the nation's gross domestic product, the measure of all goods and services produced in the U.S., expanded at a vigorous 4.8 percent rate in the first quarter, the strongest quarterly performance in 2 1/2 years.

The big gain in GDP marked a rebound from the feeble 1.7 percent rate in the final quarter of 2005, when fallout from the Gulf Coast hurricanes, including high energy prices, prompted people and companies to tighten their belts.

The initial "advance" measure of the nation's quarterly GDP is routinely revised later, however, as more-precise statistics become available. Most experts thought the revision would show first-quarter growth at an even-more-robust 5.8 percent.

Instead, the revised figures the government released yesterday showed a more modest rise, to 5.3 percent. The revision procedures are fairly technical, having to do with refining the data on investment trends, currency translation, corporate profits and a host of other largely arcane issues.

There was some evidence that consumer spending was slightly softer than first estimated, but in general, economists found little in yesterday's report that altered their fundamental view of the economy is set for a slowdown in growth during the rest of the 2006 year.

"None of these revisions are likely to have much impact on estimates of second-quarter growth, which we still estimate to be growing at a 3.1 percent annual rate," said David H. Resler, economist for Nomura Securities International Inc.

Also yesterday, the National Association of Realtors reported that sales of previously owned single-family homes and condos dropped 2 percent in April, to an annual rate of 6.76 million units.

In recent years, extremely low interest rates spurred an increase in home sales, and pushed home prices sharply higher. But the Federal Reserve's nearly two-year campaign of slowly but steadily raising rates has taken the wind out of the market.

In April, the Realtors association said, house-price appreciation continued to slow: the year-over-year increase in the median price of a home rose a modest 4.3 percent, the smallest gain since September 2001. And the total number of unsold homes climbed to a record high of 3.38 million units.

"An orderly retrenchment of the market is what all of us have been hoping for and that is what we are getting. At least for now," said Joel L. Naroff of Naroff Economic Advisors, who was concerned by the backlog in unsold homes.

James P. Miller and Mary Umberger write for the Chicago Tribune. The Associated Press contributed to this report.

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