4th-Quarter GDP Tops Estimates
The nation’s economy grew at a 1.4% annual rate in the final three months of last year as businesses replenished inventories and consumer purchases were higher than previously thought, the Commerce Department said Friday.
The fourth-quarter growth was twice the pace that the department estimated last month and showed that the economy was not as weak as the original 0.7% estimate suggested.
But analysts were hardly rushing to raise their forecasts for this year. With energy prices rocketing on war fears and consumer confidence in the midst of what New York economist Robert Barbara called a “breathtaking fall,” few consider the economy’s slightly better-than-expected performance in the fourth quarter much reason for hope.
The upward revision did little to change the stop-and-go pattern that has dogged the economy for the last two years.
The 1.4% growth rate followed a 4% rate in the third quarter and a 1.3% rate in the second, according to the Commerce Department. For the year, gross domestic product, the value of all goods and services produced in the U.S., grew 2.4%, the department said. That was an improvement over the previous year’s 0.3% growth but not enough to lower unemployment or return the country to anything like the boom-time 1990s.
Most analysts say growth is now hostage to a likely war with Iraq and rising tensions with North Korea. The economy “is stuck,” said Lehman Bros. economist Drew Matus. “We won’t know anything until after Iraq.”
Much of the upward revision in fourth-quarter GDP was due to business investment, which rose at a 2.5% clip rather than the 1.5% pace previously reported. The new figure was the best showing by business since the fall of 2000, when corporate capital spending suddenly dried up in the wake of the tech bust and stock market swoon.
Cutbacks in business investment are blamed with pushing the country into recession for much of 2001.
Increases in business inventories added 0.24% to fourth-quarter GDP, according to the Commerce Department, a big improvement over the 0.56% reduction that originally was believed to have occurred. Companies boosted spending on new equipment and software at a 6.6% pace, and although they cut spending on building at a 9.8% clip, it was a smaller reduction than in the previous quarter.
Meanwhile, consumer spending climbed at a 1.5% pace, up from the 1% that Commerce initially estimated. Still, spending, which accounts for two-thirds of all economic activity, was sharply lower than in the third quarter, when it grew at a 4.2% rate.
The upward revision in the fourth-quarter consumer figure was the result of more spending on services, the department said. Spending on durable goods such as cars fell by 8.5%, the largest quarterly drop since the recession in 1991.
But spending on residential construction rose 9.4%, more than the previously reported 6.8% increase, as the housing market continued to boom.
News of the upward revision in GDP gave the stock market a shot in the arm early Friday. But by day’s end, the Dow industrial average was up only 6.09 points, or 0.6%, to 7,891.08.
Consumer confidence fell this month because of pessimism about the economy’s prospects, a University of Michigan survey showed Friday. The university’s final February sentiment index fell to 79.9 from 82.4 last month. The measure was the lowest since September 1993.
Analysts said the threat of war, fear of further terrorist attacks and a 19% surge in oil prices since the start of the year had undermined confidence.
