GDP up by 2 percent

In some of the best news to come from the economy this year, the government reported that Gross Domestic Product for the first quarter grew by 2 percent. This beats the paltry 1 percent growth reported at the end of 2000.\nThe unexpectedly strong figures have raised the hopes of some. \n"These are great numbers…They suggest that the economy is not nearly as weak as was feared and that we are not close to being in a recession," JP Morgan Chase Securities economist James Glassman told the Washington Post.\nGlassman and other economists give much of the credit to the Federal Reserve for reducing interest rates quickly and business' ability to slow down production to avoid excess inventories.\nThe federal funds rate, the rate at which commercial banks borrow and lend from each other, 2 percent in the past four months. This is the quickest lowering of such a magnitude in Federal Reserve Chairman Alan Greenspan's tenure.\nBusinesses have rapidly slowed production, reducing the economy's level of inventories for the first time since 1991.\nConsumers continued to spend more than they made, keeping buoyancy in the shaky economy. Their robust consumption has helped keep growth in positive territory. As long as strong consumer spending continues, positive growth should follow -- but many economists don't believe this to be the case.\nRichard Rippe, chief economist at Prudential Securities, told The New York Times the recently released figures supporting a better economy don't mean "we're completely out of the woods." He said he believes that consumers will soon rein in their spending to pay off their accumulating debts as consumer spending has continued to be higher than income. If this happens, as Rippe predicts, the economy will shrink as businesses reduce production and consumers spend less.\nFurther supporting this dreary outlook is the recent slump in consumer confidence, as reported by the University of Michigan survey. The index is at a four-year low but edged up slightly in the first few weeks of April.\nReports of increasing unemployment are also worrying consumers. The four-week moving average of new unemployment claims -- the number most followed by analysts -- hit 394,000 earlier this month. This is its highest level since 1992. Conference Board, a business research group, also reported that help-wanted advertising has fallen to an eight-year low while employee costs have been rising.\nIt appears that the slowing U.S. economy is contagious. The International Monetary Fund (IMF) has recently lowered its outlook for the World Growth by 1 percent to 3.2 percent for 2001. The IMF also reported that it expects the United States to avoid a recession, but that its stock markets are still, "richly valued by historical standards." In other words, the markets' gut-wrenching drop over the past few months has still left them pricey compared with past levels.\nThe future of the U.S. economy seems to be in a precarious position. On top of this, it appears the fate of the world economy is lock step with the U.S.'s. The next couple of months should be telling of the state of the world's economic health in the near future.