4th-Quarter GDP Growth Revised to Sizzling 7.3%

The red-hot U.S. economy, powered by heavy spending by consumers and the federal government, was roaring ahead at an annual rate of 7.3% in the final three months of 1999, the fastest growth rate in nearly 16 years, the government reported Thursday.

The October-December rate of increase in the gross domestic product, the nation’s total output of goods and services, represented the strongest quarterly performance for this long economic expansion, which began in March 1991.

This was the government’s third and final look at the fourth quarter of 1999. Initially, the government estimated growth at 5.8%, then revised the figure last month to 6.9%.

The 7.3% growth rate, which exceeded economists’ expectations of 7%, was the best since a 9% surge in the first quarter of 1984, a time when the U.S. economy was still pulling out of the 1981-82 recession.

The surge in economic growth gave a healthy boost to corporate profits as well, the Commerce Department said. After-tax profits for U.S. corporations rose 2.7% in the fourth quarter, up a sizable 15% from the same period a year earlier, the best year-over-year performance since 1995.

Private economists warned that the newfound economic strength exhibited in the GDP report makes future rate increases by the Federal Reserve even more certain.

The central bank has already raised rates twice this year, in February and last week, following three rate hikes in 1999.

Even with the stronger fourth-quarter growth, inflation remained well behaved. An inflation gauge tied to the GDP was up at an annual rate of just 2%, little changed from a 1.7% increase in the third quarter.

The source of the upward revision for GDP Thursday came from a slightly smaller trade deficit, reflecting stronger exports and slightly lower imports, and strength in construction activity, reflecting the warmer-than-usual start to winter.

Consumer spending rose 5.9% in the fourth quarter, as record-high consumer confidence and low unemployment fueled demand. Other big increases included a 14.7% jump in government purchases.

The stronger growth in the fourth quarter triggered a slight upward revision for GDP growth for all of 1999, now estimated at 4.2%, up from an earlier 4.1% figure. That followed gains of 4.3% in 1998 and 4.2% in 1997.

Separately, the Labor Department said new claims for unemployment benefits rose to 266,000 in the week ended March 25 from a revised 263,000 the week before.