Economy Grows at Healthy 4.1 Percent Rate

February 27, 2004

By Jeannine Aversa
The Associated Press

WASHINGTON - America's economy, bolstered by brisk business spending, grew at a healthy 4.1 percent annual rate in the final quarter of 2003. That was even faster than first thought and offered new evidence that the nation's economic recovery was firmly rooted going into the new year.

The latest reading on the gross domestic product - the broadest measure of the economy's health - was slightly better than the 4 percent pace estimated a month ago for the October-to-December quarter, the Commerce Department reported Friday. GDP measures the value of all goods and services produced within the United States.

Even though the fourth quarter's growth rate marked a slowdown from the red-hot 8.2 percent pace of the third quarter - the best in nearly two decades - it nonetheless represented a solid performance.

The 4.1 percent pace was better than economists were predicting. They were forecasting growth rate of around 3.8 percent.

Looking ahead, the economic picture seems promising, analysts say. Economic growth in the current January-to-March quarter is expected to clock in at a rate of around 4.5 percent or higher, according to some analysts' projections.

For out of work Americans, though, these are still frustrating times even as the economy is in recovery mode. Job growth has been painfully slow. The economy has lost 2.2 million jobs since President Bush took office in January 2001, a sore spot as he seeks re-election. Democratic presidential contenders have seized on this to make the argument that his economic policies are not working.

Federal Reserve Chairman Alan Greenspan and other economists, however, are hopeful that companies will step up hiring in the coming months.

In an especially encouraging sign that companies are feeling more confident in the staying power of the recovery, they boosted investment in equipment and software in the fourth quarter at a sizable 15.1 percent annual rate. That was stronger than the 10 percent rate first estimated and was a main factor in GDP being revised upward for the fourth quarter.

Another factor: Businesses were more aggressive than previously thought in adding to their stockpiles in the fourth quarter. Business inventory building added 0.92 percentage point to fourth-quarter GDP, even better than the 0.61 percentage-point increase estimated a month ago. That also was a sign that businesses were betting on stronger appetites for their goods.

A sustained turnaround in capital spending by business is a key ingredient for the economic recovery to be lasting. It was deep cuts to such spending that thrust the economy into a recession in 2001. The economy has struggled mightily to get back on firmer footing and finally in the second half of 2003 managed to cast off its lethargy.

The economy's performance in the second half of last year marked the best back-to-back quarterly performance since the first two quarters of 1984.

Economists are heartened that businesses appear to be doing more to keep the economy going. Throughout economic hard times and during most of the recovery consumers have been doing the heavy lifting.

In the fourth quarter, consumers spent modestly and increased their spending at a 2.7 percent annual rate, slightly stronger than the 2.6 percent pace estimated a month ago. Still, that marked a slowdown from the third quarter as consumers spent lavishly - powered by extra cash from a home-mortgage refinancing frenzy and the president's third round of tax cuts.

Analysts predicted the economy would slow in the fourth quarter compared to the third quarter's scorching pace as the stimulative impact of refinancing and the tax cuts faded.

Consumers in fact trimmed spending on big-ticket goods, such as cars, at a 0.1 percent rate in the fourth quarter, the first decline since the second quarter of 2000.

Although economists believe consumers will keep their pocketbooks sufficiently open to help along the economy, they are still keeping a close eye on their behavior. Some economists worry that consumers might turn more cautious given the lackluster job market.

Source: Associated Press

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