June 26, 2004 in Business

Trade deficit slows economic growth

Associated Press
 

WASHINGTON – The economy, weighed down by a bloated trade deficit, grew at a slower pace in the first quarter of the year. The 3.9 percent rate suggested a still-sturdy recovery but raised questions about its strength in the months ahead.

The new reading on the gross domestic product, issued Friday by the Commerce Department, wasn’t as strong as the 4.4 percent growth rate previously estimated for the January-to March quarter. It also was slightly slower than the 4.1 percent pace of the final quarter of 2003.

The GDP measures the value of all goods and services produced within the United States.

A main culprit to the downward revision was the yawning trade deficit. That shaved 0.7 percentage point off the first-quarter GDP, which was twice as much as estimated a month ago. Consumers also spent more modestly, and businesses didn’t boost spending to buy equipment and to build inventories as much as previously thought.

The 3.9 percent growth rate, while the slowest pace since the second quarter of 2003, was still considered healthy, economists said.

“This is a little bit less momentum than we thought, particularly on the business side,” said Bill Cheney, chief economist at MFC Global Investment Management. “But in the scheme of things, it’s a decent rate of growth.”

In other economic news, sales of previously owned homes climbed in May to a record annual rate of 6.80 million units, a 2.6 percent increase from April’s level, the National Association of Realtors reported. Even with higher mortgage rates, home sales are expected to set records for all of 2004, economists said.

Estimates for economic growth in the April-to-June quarter ranged from a rate of 3.5 percent to just more than 4.5 percent. Even on the low end of that scale, the rate would be sufficient to generate jobs, analysts said.

Growth would be stronger if not for the expectation that higher energy prices will crimp consumer and business spending, they said.

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