(April 27) – “The economy slowed more than expected in the first quarter, but a surprisingly strong uptick in employment costs signaled renewed inflationary pressures. The U.S. economy grew at a 5.4% annual rate during the first quarter, propelled by the biggest jump in consumer spending in nearly 17 year,”The Wall Street Journal is reporting this morning.
“The increase in the gross domestic product, or the country’s total output of goods and services, was weaker than the 6% rate many economists were expecting, according to Thomson Global Markets.
“But worker compensation costs rose at the fastest pace in nearly 11 years in the quarter. The Labor Department said the employment cost index rose 1.4%, an acceleration from the fourth quarter’s 1% increase. Economists had expected the ECI to increase just 0.9%. Year-over-year, the index grew at a 4.3% rate, the quickest pace since the fourth quarter of 1991.
“Gross domestic product growth in the first three months of the year was slightly slower than the breakneck 7.3% rate posted in the last three months of 1999, which was the strongest showing in nearly 16 years.
“However, the first-quarter performance was still faster than the 3.5% to 4% rate that the Federal Reserve regards as sustainable without triggering inflation and it shows that the record-breaking economy didn’t lose a lot of momentum at the beginning of the year.
First-quarter growth was led by a whopping 8.3% rate of increase in consumer spending—the largest gain since a 8.6% rate posted in the second quarter of 1983.
“The Fed, fearing that unchecked growth could worsen inflation, has raised interest rates five times since June 30 to slow the speeding economy. Given the outlook for continued strong growth, many economists believe the Fed will boost interest rates on May 16 and again in June. Thursday’s data could spur fears that the central bank will embark on an even more aggressive policy to tighten the money supply.”