Slowdown Confirmed by GDP Data

The U.S. economy expanded at its weakest pace in four years during the third quarter, government figures showed Thursday, and other reports indicated growth may be slowing further. Inflation was tamer than previously thought.

The gross domestic product grew at a 2.2% annual rate in the period from July through September, less than the previously estimated 2.4% growth rate, the Commerce Department said. Revisions to the earlier estimate reflected fewer exports and less business investment.

The last time growth was slower was the third quarter of 1996, when the economy expanded at a 2% pace.

The Labor Department reported separately that the number of people filing initial claims for state jobless benefits rose by 34,000 last week to 354,000. The four-week moving average of claims rose to 347,250, the highest since mid-July 1998.

Meanwhile, the regional Federal Reserve Bank of Philadelphia said manufacturing activity in the U.S. mid-Atlantic region contracted in December--a third bleak month after sluggish growth in November and another contraction in October.

Federal Reserve policymakers said Tuesday that the economy may be slowing more than desired and warned of further “weakness,” an about-face in policy. After raising interest rates six times between June 1999 and May to keep the economy from overheating, the central bank’s latest statement suggests Fed Chairman Alan Greenspan may push to cut interest rates early next year to stem the decline.

Federal Reserve policymakers Thursday released minutes of their Nov. 15 meeting that showed they had toyed with the idea of changing their view of risks to the economy to an equal balance between inflation and recession.

In the end, members of the Federal Open Market Committee unanimously decided to keep their existing policy statement, still viewing inflation as the greatest threat. They also unanimously approved leaving the overnight bank lending rate unchanged at a nine-year high of 6.5%.

The GDP report showed the threat of accelerating inflation has ebbed. The GDP price deflator, a measure of inflation tied to the report, rose at a 1.6% pace in the third quarter, previously estimated as a 1.9% increase. The personal consumption expenditures price index, which is closely watched by Greenspan, rose at a 1.8% rate, previously reported as an increase of 2.1%.

After-tax corporate profits rose at a 0.6% annual rate after increases of 2.5% in the second quarter, 5.7% in the first and 6.2% in the fourth quarter of 1999.