US economy sees stunning growth

(Source Article: US first-quarter economic growth - Reuters)

During the first quarter, the US economy expanded at 5.6%, the highest growth in almost three years. However, with the increasing cost of gasoline, spending has subsided and that growth rate is fading, experts said. (See US economy expanded at 5.6% - bloomberg.com)

Additionally, the trade deficit widened less than previously expected—all following a paltry 1.7% increase in GDP over the last quarter 2005. This rate wont be sustained with a decreasing amount of spending, but the economy didn’t slow down enough to prevent the Fed Chairman from raising interest rates yet again; on Thursday, the Fed raised rates for the 17th time in a row amidst continuing worries of inflation. Rates went up 5.25%, the highest percentage since March 2001. (see Fed raises rates – Reuters)

The trade deficit last quarter was a staggering US$ 660.9 billion, down from a previously estimated $669.9 billion; this deficit subtracted .24 percentage points from growth, but last month’s estimates expected .55 percentage points to be subtracted. Business investment and increased government spending contributed heavily to the first quarter’s remarkable growth.

Recently a study at UCLA predicted that the US economy will not see a recession in the near future, despite continuing sluggish growth attributed to low consumer spending and a downturn in the housing market—with home values flattening and a potential burst in the real estate bubble, less home equity tapping to fuel consumption will occur. (see US economy to avoid recession - Reuters)