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. Last Updated: 07/27/2016

U.S. GDP Soars 5.8% As Spending Increases

WASHINGTON -- The U.S. economy raced ahead in the first quarter at the fastest pace in more than two years as consumers spent solidly and a yearlong trend of sharp cutbacks in business inventories showed signs of tapering off, the U.S. government said Friday.

The latest report from the Commerce Department showed the economy snapping back sharply from one of the mildest recessions in history but it may not fully resolve lingering concerns about the strength of economic growth going forward.

U.S. gross domestic product bolted upward at a 5.8 percent annual rate in the first three months of this year -- a full percentage point higher than the forecasts of private economists. The latest growth in GDP was the strongest since the economy soared 8.3 percent in the final quarter of 1999.

The dollar rose after the GDP number and inflation-sensitive bonds trimmed their gains. However, economists said the pace of growth should moderate in coming quarters.

"The implication from the larger swing in inventories is that it means it will be harder to get stronger GDP numbers in subsequent quarters. We won't have as much of an additional swing lifting GDP numbers in subsequent quarters," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, North Carolina.

The first-quarter gain follows growth of 1.7 percent in the fourth quarter of 2001 and a contraction of 1.3 percent in the third quarter.

An elite panel of academic economists at the National Bureau of Economic Research has said the U.S. economy entered a recession in March 2001, but the NBER has not yet ruled on when the recession ended. Many private economists have pegged the end of 2001 as a time when the economy appeared to turn the corner to recovery, and the latest GDP figures should add fuel to that assumption.

The single-biggest factor bolstering GDP in the first quarter was an abrupt slowdown in the pace at which firms pared back inventories of unsold goods. Firms have slashed their inventories for five straight quarters but in the first quarter they did so at a much slower rate than previously.

Production can go up when companies begin relying less heavily on existing inventories to meet customer demand.

Businesses cleared out $36.2 billion worth of inventories in the first three months of this year, a much smaller reduction than the $119.3 billion they wiped out in the fourth quarter.

Consumer spending grew a healthy 3.5 percent. An 8 percent drop in spending on durable goods such as cars was offset by an 8.4 percent surge in purchases of nondurable items like clothes. The gain in nondurable goods was the biggest since an 8.9 percent jump in the second quarter of 1975.

Corporate spending on new plants and equipment fell but its drop in the first quarter was smaller than those of other recent quarters, which was a positive sign for an economy hit hard by sharp declines in purchases of computers and other business investments.

Business investment on structures, equipment and software fell 5.7 percent in the first quarter of 2002 after plunging 13.8 percent in the fourth quarter.