US economy roars back
 

WASHINGTON -- The US economy recorded its fastest pace of growth in more than two years by expanding a robust 4.8 percent in the January-March quarter, government data showed Friday.

Helped by sizzling consumer spending, annual growth in gross domestic product (GDP) recovered smartly from the weak pace of 1.7 percent seen in the last three months of 2005.

The Department of Commerce's preliminary estimate for the first quarter was roughly in line with Wall Street forecasts for growth of 4.9 percent, and was the best pace of growth since the third quarter of 2003.

"It's a very strong report. We're seeing a lot of strength in the consumer and business sectors," Societe Generale economist Stephen Gallagher said.

Federal Reserve Chairman Ben Bernanke said Thursday that the US economy risks slowing later this year as the red-hot property market cools. He hinted that the central bank could pause on its long campaign of rate hikes.

But in the first quarter at least, GDP snapped back after the marked slowdown at the end of last year when the effects of Hurricane Katrina were winding their way through the world's biggest economy.

"Bernanke made a very valid warning but this first-quarter report shows nothing but strength," Gallagher said. "We're still looking for more concrete signs that the economy is moderating."

The US administration, which is struggling to overcome a plunge in its poll ratings, said the report showed the economy "is clearly on the right path."

But Treasury Secretary John Snow acknowledged the economy was unlikely to sustain such a level of growth. "Going forward, we expect continued solid growth returning to trend," he said.

Household spending jumped 5.5 percent in the first quarter, compared to a rise of just 0.9 percent in the fourth quarter of 2005. Purchases of durable goods such as cars and washing machines rocketed 20.6 percent.

Government spending was up 10.8 percent owing to more expenditure in Iraq and on post-Katrina reconstruction.

Disposable income rose 3.8 percent. But the savings rate fell to minus 0.5 percent as US consumers went deeper into debt, a potential source of concern should the economy indeed turn down.

Companies accelerated their investment to a growth rate of 14.3 percent but also drove up their inventories to subtract 0.52 points from the overall GDP figure.

Investments in equipment and software increased 16.4 percent, the sector's fastest growth since the first quarter of 2000.