Economic growth revised up in first quarter

In other economic news, more people signed up for jobless benefits last week, the latest sign of softness in the employment market. The Labor Department said new applications filed for unemployment insurance rose by 4,000 to 372,000 last week. The increase left claims slightly higher than the 370,000 level that economists were expecting.

Looking ahead, top forecasters at the National Association for Business Economics predict the economy will eek along at a 0.4 percent growth rate during the April-to-June period, which is expected to be the weakest quarter of the year. Growth should pick up to a 2.2 percent pace in the third quarter, energized by the Fed’s powerful series of rate reductions and billions of dollars worth of tax rebates flowing into the hands of Americans from Uncle Sam.

The Bush administration and the Federal Reserve also are hoping for economic rebound in the second half of this year. That — along with inflation concerns — is why the Fed has signaled it isn’t inclined to lower rates further.

Even if economic activity strengthens later this year, the unemployment rate — now at 5 percent — is expected to climb to 6 percent or higher early next year. Businesses, which have trimmed their work forces to cope with the economic slowdown, will be reluctant to bulk back up until they feel certain the economy’s recovery will be enduring.

An inflation measure linked to the GDP report showed that prices grew at a rate of 3.5 percent in the first quarter. That was the same as initially estimated and down from a 3.9 percent pace in the fourth quarter.

Excluding food and energy prices, “core” inflation increased at 2.1 percent pace in the first quarter. That was down slightly from the government’s first estimate of a 2.2 percent increase for the period and also marked a moderation from the fourth quarter’s 2.5 percent growth rate. The core inflation figure, however, is still outside the Fed’s comfort zone. The upper level of the Fed’s inflation tolerance is 2 percent.

Looking forward, inflation pressures could get worse given surging food and energy prices. Oil prices, which have racked up a string of record highs, are hovering above $131 a barrel. Gasoline prices have marched higher, too, moving closer to $4 a gallon nationwide.

Those high prices are a double-edged sword for the economy. They can put a damper on growth and also can spread inflation if they force companies to boost their prices.

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