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Economic signs strong despite rising oil prices

A continuing boom in housing activity helps boost quarterly numbers above predictions.

WASHINGTON - Even in the face of high energy prices, the economy turned in a solid performance in the first quarter of 2005, suggesting the expansion should stay on firm footing.

The gross domestic product, the broadest measure of economic standing, increased at an annual rate of 3.8 percent from January through March, according to revised figures released by the Commerce Department on Wednesday.

That compared with a 3.5 percent growth rate estimated a month ago and matched the showing over the final three months of 2004.

GDP measures the value of all goods and services produced within the United States. In the opening quarter of 2005, it climbed to $11.1-trillion on an annualized basis, adjusted for inflation.

Brisk spending on housing projects, more investment by business in equipment and software, and a trade deficit that was less of a drag on economic growth all played a role in the higher first-quarter GDP reading.

"The economy is performing well. Sturdy growth with modest inflation," said Mark Zandi, chief economist at Economy.com.

That is especially heartening, given the high energy prices. "It illustrates the resilience of the economy and the durability of the current economic expansion," he said.

Oil prices hit records in March and April, and set a closing high of $60.54 a barrel Monday. Prices have retreated somewhat since.

On Wall Street, the GDP report failed to inspire investors. The Dow Jones industrials lost 31.15 points to close at 10,374.48.

Zandi is among the economists who think the economy is growing at a rate of 3.5 percent or better in the current April-June quarter. Others, however, predict it will end up under 3 percent.

Federal Reserve chairman Alan Greenspan told Congress this month that the economy in general "seems to be on a reasonably firm footing." He did raise concerns about the housing market.

Spending on housing projects sizzled at an 11.5 percent growth rate in the first quarter, compared with 3.4 percent in the fourth quarter. That was the biggest increase since the second quarter of 2004.

Greenspan said it does not appear likely that a national housing bubble, which could pop and send prices tumbling, will develop. But he worried about "froth" in local markets.

Low mortgage rates, which have powered record-high home sales for four years in a row, are keeping housing activity buoyant.

The Bush administration pointed to the latest GDP report as evidence that economic activity is improving. "The economy is showing solid and sustained growth and job creation," White House press secretary Scott McClellan said.

The unemployment rate dipped to a low 5.1 percent in May, but payroll growth slowed.

To keep inflation under control, the Federal Reserve has boosted short-term interest rates eight times - by one-quarter of a percentage point each time - since June 2004.

One more increase was expected at the conclusion today of the Fed's latest meeting.

[Last modified June 30, 2005, 00:58:11]