WASHINGTON – The U.S. economy (search) performed a little bit better in the first three months of 2003 than first thought, growing at an annual rate of 1.9 percent. But even with the improvement, the pace of economic growth was still below normal.
The latest reading on gross domestic product (search) for the January to March quarter shows the economy expanding slightly faster than the 1.6 percent growth rate estimated a month ago, the Commerce Department (search) reported Thursday. The GDP is the broadest measure of the economy's health.
The new GDP estimate, based on more complete data, was right on target with economists' expectations. GDP measures the total value of goods and services produced within the United States.
One of the main reason's the first-quarter GDP reading was revised higher was because consumers -- the main force keeping the economy going -- opened their pocketbooks and wallets a bit wider than previously thought.
Still, the country was feeling the strains of war jitters and bad weather in the first quarter, factors that weighed on an already lumbering economy, economists say. In the last three months of 2002, economic growth clocked in at a mediocre annual rate of 1.4 percent.
Private economists agree. They don't think the economy will do much better than the first quarter. Forecasts for second-quarter economic growth range from a 1.8 percent rate to a rate of more than 2 percent.
Greenspan told lawmakers that the "economy continues to be buffeted by strong cross currents."
He said recent economic reports on employment and production have been "on the weak side." But improved conditions in financial markets and strong productivity gains -- a key to the nation's long-term economic well being -- augured well for the economy's future.
The Federal Reserve has been holding a key interest rate at a 41-year low of 1.25 percent since November, with the hope that will motivate consumers and businesses to spend and invest more and give the economy a boost.
Economists have offered mixed opinions on whether the Fed will cut rates at its next meeting June 24-25.
The new federal tax cut -- a 10-year, $350 billion package of tax rebates, lower rates, new breaks for businesses and investors and aid to states -- was signed into law by President Bush on Wednesday. It, too, is aimed at energizing economic growth.
In the January-March, quarter, consumer spending increased at an annual rate of 2 percent. That was better than the government's first estimate of a 1.4 percent growth rate for the quarter and marked an improvement from the fourth quarter's tepid 1.7 percent growth rate. However, the 2 percent pace was still subpar.
Consumers cut spending in the first quarter on cars, appliances and other big-ticket "durable" goods. But they increased spending on "nondurable" items, such as food and clothes, as well as on services.
Businesses, meanwhile, have largely restrained spending, a major factor preventing the economy from returning to full economic speed.
Businesses cut spending on equipment and software in the first quarter at an annual rate of 6.3 percent, a deeper reduction than previously estimated and a reversal from the fourth quarter's 6.2 percent growth rate.
However, businesses increased spending on new buildings, plants and other structures at a 0.4 percent rate, after cutting such spending for five straight quarters.
The report also showed that after-tax profits of U.S. companies increased by 2.5 percent in the first quarter, down from a 4.1 percent increase in the fourth quarter.
Economists say that businesses will continue to be cautious until profits get stronger and they feel more confident in the economy's recovery.
Until then, businesses probably won't be in a rush to hire, meaning the nation's unemployment rate -- now at 6 percent -- probably will stay there or move higher in the coming months, economists say.