Economy rebounds in 1st quarter

4.8% pace strongest growth spurt in 2 1/2 years

Casting off an end-of-year lethargy, the U.S. economy bounded ahead in the opening quarter of this year at a 4.8 percent pace, the strongest growth spurt in 2 1/2 years.

The latest report on the economy, released by the Commerce Department on Friday, showed that consumers, businesses and government all did their part in terms of robust spending and investment to spur a healthy pace of growth in the January-to-March quarter.

The 4.8 percent increase in the gross domestic product marked a vast improvement from the feeble 1.7 percent annual rate registered in the final quarter of 2005, when fallout from the Gulf Coast hurricanes, including high energy prices, prompted people and companies to tighten their belts.

The GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the economy's fitness

"The economy is off to a strong start in 2006 and has fully rebounded from the fourth quarter's setback," said Stuart Hoffman, chief economist at PNC Financial Services Group.


The first quarter's performance - the best showing since the third quarter of 2003 - was close to economists' expectations. Before the report was released, private analysts were forecasting the economy to clock in at a 4.9 percent growth rate.

Even with the economy zipping ahead in the first quarter, inflation actually moderated.

An inflation gauge closely watched by the Federal Reserve showed that core prices - excluding food and energy - rose by 2 percent, down from 2.4 percent in the fourth quarter.


A separate report from the Labor Department suggested that the strengthening job market isn't fanning inflation. Employers' cost to hire and retain workers - wages and benefits - rose by 0.6 percent in the first quarter, the slowest pace in seven years. That mostly reflected less generous benefit packages.


To keep inflation at bay, the Fed is expected to boost interest rates again at its May 10 meeting, which would mark the 16th increase since June 2004. But after that, the central bank could take a break - perhaps temporarily - in its 2-year-old rate raising campaign, Fed Chairman Ben Bernanke suggested Thursday.

With businesses feeling better about the economy, hiring has picked up. In March, the unemployment rate dropped to 4.7 percent, matching January's - the lowest in 4 1/2 years.

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