First Quarter GDP Revised Up to 3.8 Percent

Robust new-home building and stronger exports helped the U.S. economy expand at a faster-than-expected 3.8 percent annual rate in the first quarter, the Commerce Department (search) said on Wednesday as it revised its growth estimate up for a second straight time.

Initially, the department said gross domestic product (search) — the broadest measure of total economic activity within U.S. borders — grew at a 3.1 percent rate but it pushed that up to 3.5 percent a month ago before finally revising it to match the 3.8 percent rate posted in the closing quarter of 2004.

The final figure outpaced Wall Street economists' forecasts for a 3.7 percent rate of going into the spring than previously thought. Most forecasters say GDP will continue expanding at rates around 3.5 percent in coming quarters, despite some strain from costlier energy prices.

The first estimate of second-quarter performance will not be available for another month. The government revises its GDP data twice each quarter as it gathers updated trade, employment and price information.

The first-quarter GDP report was one of the final pieces of economic data that Federal Reserve (search) policy-makers, who are scheduled to begin a two-day meeting on Wednesday afternoon to consider interest-rate strategy, will have as they move toward a widely predicted ninth straight rate increase on Thursday.

The Fed began raising rates a year ago, pushing its trend-setting federal funds rate up in eight successive quarter-point increments from a 46-year low of 1 percent to a current level of 3 percent and so far it has given no indication that it is considering a halt to the rate-rise cycle.

The revised GDP report showed prices remained well behaved. A gauge favored by Fed Chairman Alan Greenspan (search) — personal consumption expenditures minus food and energy — advanced at a 2 percent annual rate instead of 2.2 percent estimated a month ago. That was moderately ahead of the first quarter's 1.7 percent rate.

The sizzling home-building industry contributed importantly to the upward revision in first-quarter growth. Residential spending climbed at an 11.5 percent rate instead of 8.8 percent estimated a month ago. That was more than three times the 3.4 percent growth rate posted in the fourth quarter of last year.

In addition, exports grew at an 8.9 percent rate instead of 7.2 percent calculated a month ago — also nearly three times the 3.2 percent rate of increase in the final quarter of 2004.

Despite the stronger economic performance, growth in corporate profits after taxes weakened from the fourth quarter. Commerce said profits grew at a revised 1.2 percent annual rate in the first quarter compared with the 1 percent rise originally reported, and slowing from the 12.5 percent in the final three months of 2004.