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Economy Surprises Wall Street With a 2.8 Percent Growth Rate

By Jonathan Peterson
Los Angeles Times

Despite a weighty assortment of baggage, the U.S. economy cruised forward at a 2.8 percent growth rate in the first three months of this year, startling Wall Street and challenging expert views on the strength of the expansion, the Commerce Department reported Thursday.

The gain, which follows anemic 0.5 percent growth in the last three months of 1995, came in the wake of government shutdowns, a major blizzard and the strike at General Motors. It reflected unexpectedly brisk spending by consumers and business, much of it on computers, analysts said.

The news that the gross domestic product -- a measure of all the goods and services produced in the national economy -- had grown more than expected came as welcome news to the White House as President Clinton maps his re-election strategy.

And it suggested to some analysts that the current economic recovery, now five years old, may be far more stable than had been recognized.

At the same time, the news frightened many investors, and stock and bond prices plunged. The Dow Jones industrial average fell nearly 77 points, and the interest rate on a 30-year Treasury bond edged over 7 percent for the first time in nearly a year.

While a 2.8 percent growth rate would normally be viewed as moderate, analysts said that the number understated the economy's actual strength, given the peculiar burdens the economy was working against earlier this year. Without the GM strike, for instance, growth would have reached a more ebullient 4 percent rate, the government reported.

Yet Thursday's report offered little evidence of an inflation problem. One price measure, known as the GDP Price Index, rose at just a 2.5 percent annual rate.

The growth report is just the latest in a recent series of statistics that suggest the national economy is heartier than many had thought. The Commerce Department also reported Thursday that U.S. factory orders rose 1.5 percent in March, the first gain of the year. Separately, claims for jobless benefits slipped last week to the lowest level in more than three months, hinting of strength in the labor market.

The Clinton administration has argued that the nation's underlying economic health is more positive than the image created by corporate layoffs and the often-discussed anxieties of workers. Officials said Thursday's report highlighted the important role of business investment in the current expansion, a factor that could pay off for years, and also reflected a buoyant attitude on the part of consumers.