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US Economic Expansion Greater Than Expected - 2002-04-26


The U.S. economy expanded at a rapid 5.8 percent annual rate in the first quarter of this year. Growth was considerably faster than experts had anticipated.

The consensus estimate for first quarter growth had been five percent. The commerce department has said the 5.8 percent figure reflects a rapid buildup of business inventories that had been depleted during last year's mild recession.

Steven East, chief economist at the Friedman Billings brokerage in suburban Washington said the gross domestic product report is good news. But he doubts that growth can be sustained at this pace for the remainder of the year.

"I think in the second and third quarters you're likely to get something closer to three percent real growth in GDP. That you're going to slow down from something close to six percent here in the first quarter to three percent in the second and third quarter," Mr. East said.

The Commerce Department will revise first quarter growth figures two more times in coming weeks.

The International Monetary Fund last week predicted that the U.S. economy would register 2.3 percent growth for 2002 as a whole. Because of the recession that started last March and continued until probably November 2001, growth last year in the United States was barely more than one percent.

The stock market, a barometer of future economic activity, has been weak for two years and has shown little improvement in the last few weeks. The market is worried that corporate profits will be slow to recover.

Chief executives of major companies likewise are skeptical about the strength of the economic recovery. They worry about the high levels of business and consumer debt. The first quarter recovery was boosted by tax cuts and continuing low interest rates that resulted from 11 cuts in official short-term rates last year.

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