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HOUSING PERKING UP One surprising bright spot in the first quarter's data: housing. Spending on home construction and renovations rose by the most in nearly two years. Some of that gain was likely fueled by the warm winter. Many construction projects are usually put on hold when building sites are covered with snow and ice. That didn't happen so much this winter. Housing is expected to contribute to growth this year for the first time since 2005. FIRST DRAFT OF HISTORY Friday's GDP report is just the initial estimate for first-quarter economic output. As is customary, the government will update its estimate in May and June. And then in July, the first-quarter numbers will be tweaked yet again. That's when the government will revise its estimates of growth from 2009 through the first quarter of this year. Last year, figures on incomes and saving were revised to show that Americans earned and saved more than previously estimated. Some economists think the current numbers on savings and income will also be revised higher later this year. BETTER THAN OVERSEAS As disappointing as the first-quarter numbers were, the U.S. economy still looks a lot stronger than most of the rest of the developed world. It's expected to grow at least 2.5 percent for the full year. By contrast, Britain's economy will only grow 0.8 percent and Japan's about 2 percent, according to forecasts from the International Monetary Fund. Things are even worse in Europe. The 17 countries that use the euro as their currency are expected to see growth shrink 0.3 percent. "Growth is an increasingly rare commodity in the global economy, but the US has got it," says Jason Conibear of Cambridge Mercantile, which specializes in trading currencies. NOT FAST ENOUGH This was the 11th quarter since the Great Recession officially ended in June 2009. The fastest rate of economic growth has been 3.9 percent in the first quarter of 2010. Normally, a much bigger bounce would follow a deep recession like the one the United States sank into in December 2007. When the economy emerged from the recession of 1981-1982, for instance, growth hit an 8 percent annual pace for four straight quarters in 1983 and 1984. THE WEIGHT OF GOVERNMENT Government spending cuts are weighing on the U.S. economy in a way that hasn't been seen in generations. Those cuts have reduced growth for six straight quarters
-- the longest stretch since 1955. Reduced government spending subtracted 0.6 percentage point from the first quarter's growth. That drag may ease the rest of this year. Defense spending fell sharply in the past two quarters, which isn't likely to continue. And state tax revenue is recovering, closing budget gaps. "It's hard for the economy to accelerate when the government has its foot on the brake," said Joel Naroff, president of Naroff Economic Advisors. WILL FED INTERVENE? The Federal Reserve might have to rethink its forecasts and its policies, economists say. One economist thinks the Fed is now more likely to pursue a third round of bond purchases to try to push down long-term interest rates to stimulate the economy. It's "back on the table," says Bernard Baumohl of the Economic Outlook Group. BOOST TO STOCKS? The possibility that the Fed might intervene helps explains why stocks rose slightly on news of a slowing economy. When the Fed tries to lower interest rates and boost the economy, investors tend to shift money out of lower-yielding investments and into stocks. "(Fed Chairman) Ben Bernanke has created the impression that if the economy stumbles, he'll be there to hold your hand," says David Rosenberg, chief economist of money manager Gluskin Sheff. Lifted also by corporate profit gains, the Dow Jones industrial average was up about 37 points in late-afternoon trading Friday. WHY IT MATTERS The U.S. gross domestic product is the bedrock of the economy. It measures the output of all goods and services produced in the United States, from cars to electricity to manicures. GDP growth drives job creation, pay, corporate profits and stock prices.
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