By Andrew L. Jaffee

The U.S. economy is on fire. The Department of Commerce announced today that GDP (gross domestic product) for the first three months of 2006 grew at an annualized rate of 5.3%. GDP is defined as the market value of all the services and goods produced by labor and property in the U.S. This is way up from the 1.7 percent increase in the last three months of 2005. From CNNMoney.com:

It was the best rate of growth since the fourth quarter of 2003.

Consumer spending, which accounts for about 70 percent of the nation’s economy, grew at a 5.2 percent annual rate in the first quarter, but that was down from the original reading of 5.5 percent.

The decline was largely responsible for the number coming in lower than forecasts, according to Anthony Chan, chief economist for JPMorgan Private Client Services.

But Chan said the report was positive for financial markets because it should calm inflation fears and give the Federal Reserve more flexibility to not raise rates at its meeting in late June.

A closely watched inflation measure in the report, which measures prices paid by consumers for items other than food or energy, rose at a 2.0 percent annual rate in the quarter, unchanged from the government’s initial reading, which lessened inflation fears in the markets.

“This is definitively one of the best case scenarios anyone could hope for,” Chan said. “The 5.3 percent growth is still strong, and the 2.0 percent is definitely still in the sweet spot for the Fed. This makes Goldilocks look good.”

Here’s a chart I threw together of U.S. GDP growth by quarter from Q2 of 2002 through Q1 of 2006, based on numbers from the Bureau of Economic Analysis: