BOOMING ECONOMY CONTRADICTS FORECASTS.

Byline: Robert D. Hershey Jr. The New York Times

The stunning 5.6 percent annual rate of growth in the first quarter surpassed even the most optimistic forecasts and confounded assumptions of a few months ago that the economy would slow in the new year.

The gain, which translated into an increase of $96.1 billion in gross domestic product - an advance about the size of the entire economy of Norway - reflected heavy spending by consumers and businesses, partly as a result of warmer than usual weather. The gain brings the economy's inflation-adjusted output to an annual rate of $7.09 trillion.

``Consumers have jobs, incomes and confidence,'' Everett Ehrlich, undersecretary of commerce, exulted in an effort to explain the increase.

Although the Clinton administration claimed credit for the robust growth, and the continued modest inflation, it acknowledged that it had been caught off guard by the new figures.

``Although we had known that retail sales were strong, we were still surprised to see consumption grow at nearly twice its normal pace,'' said Janet Yellen, chief economic adviser to the president.

After initial concerns that the booming economy could fuel inflation and higher interest rates, the securities markets decided Tuesday that the report was not particularly worrisome, and the Dow Jones industrial average rose above the 7,000 mark to its highest close in more than a month.

Richard Rippe, chief economist at Prudential Securities, explained investors' reaction by saying, ``The overall bet the markets are making is that this economy will slow to sustainable rates before we do serious damage to the inflation outlook.''

Indeed, some early signs of April performance suggest that the economy has now begun to slow. That process may well be spurred by the huge buildup of inventories that accounted for 1.7 percentage points of the first-quarter increase in GDP.

The size of such inventories implies that production cutbacks lie ahead when consumer demand slackens, as it must, economists said.

The increase in personal spending leaped to a 6.4 percent annual pace in the January-March period, from 3.4 percent in the final three months of 1996, according to Wednesday's report, by the Commerce Department.

Analysts said unusually good weather had contributed in some measure to the strong first-quarter growth, in effect inspiring activity that otherwise would not have occurred until spring.