The first quarter's 1.6% growth in GDP was barely above the 1.4% rise in the previous quarter; however, almost all forecasts now anticipate a return to 3% plus growth for the rest of the year and about 4% next year. Credit a post-war rise in confidence, a falling dollar, balanced inventories and the expected stronger economic growth in other countries in spite of SARS. This will begin to make significant cuts in the number of unemployed and in surplus factory capacity by next winter. But it is short of potential growth. So there will be little pressure on prices and availability until late 2004.

Equipment investment fell 4.4% after rising at a 5.5% pace for three quarters but is likely to resume growing soon. The decline was due to a 15% fall in business vehicle purchases as rebates were reduced temporarily and pre-war business confidence plunged. Longer planning cycle investments did better. Spending rose 19.3% for computers and related equipment, 5.7% for other electronics and declined only 1.8% for industrial machinery. Industrial investments are increasing slowly as the second quarter concludes, but will continue to be restrained by surplus capacity for another year.

The first quarter of this year was most memorable for how well new houses and consumer spending held up. Except for those two, the economy either shrank or posted slim growth. Investment in new houses and remodeling jumped 12%. Expect only 4-5% growth here going forward. Nondurable goods spending increased 4.2%. Consumers dipped into savings to maintain an average growth pace in an otherwise weak quarter. The call up of reservists boosted federal spending 2.5% but this will be reversed soon. Other government spending was cut 0.1%.

Final sales of goods and services grew 2.1% in the first quarter, up from only 1.1% in the previous quarter. Many purchases were from inventory, largely eliminating the small surplus inventory that had appeared at the end of 2002. It suggests more economic pick up in the first quarter than the total GDP numbers implied. Meanwhile exports fell, but imports fell much more. Domestic purchases (of both domestic and imported products) increased at only a 0.7% annual pace after gaining over 3% for more than a year.