U.S. Economy Expanded at 0.2% Annual Rate in Fourth Quarter
from Bloomberg
By Carlos Torres
Washington, Jan. 30 (Bloomberg) -- The U.S. economy unexpectedly expanded in the fourth quarter as consumer and government spending surged, a sign the recession that started last March may have run its course.
Gross domestic product, the total value of all goods and services produced in the nation, rose at a 0.2 percent annual rate from October to December after falling at a 1.3 percent pace in the third quarter, the Commerce Department said.
Personal spending increased at the fastest annual rate in almost two years and inventories declined at a record pace. This combination may prompt companies to boost production and help the economy accelerate, analysts said. General Motors Corp. and Ford Motor Co. are among those gearing up assembly lines after record sales caused a decrease in the number of vehicles on dealer lots.
Consumer spending ``kept the economic ship from sinking deeper into recession,'' said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis, before the report. The last quarter of 2001 ``marks the end of this recession because the economy is in the process of growing again.'' Companies ``have to produce more because inventories are at rock bottom.''
Analysts expected the economy to shrink at a 1.1 percent annual rate in the fourth quarter.
Economy Last Year
The economy in 2001 expanded 1.1 percent, the weakest performance since 1991, the year in which the last recession ended. Still, from April to December of last year, the economy shrank at a 0.3 percent annual rate. That compares with a 2 percent annual drop from July 1990 to March 1991, the first nine months of the last recession.
``We are not quite so bold to predict the end of this recession, but we are hopeful that it will end sooner, rather than later,'' said Greg Quesnel, chief executive of CNF Inc., owner of the largest U.S. regional trucking company based in Palo Alto, California, on a conference call yesterday. ``We have at least hit bottom. We should be poised for some kind of rebound later this year.''
The report comes the same day that Federal Reserve policy makers are expected by investors to leave the target for the benchmark overnight bank lending rate at 1.75 percent amid signs the economy is poised to recover. The overnight rate is the lowest in four decades.
Inventories
Central bankers are also pointing to low inventories as a signal the economy is likely to recover.
``With production running well below sales, the potential positive effect on income and spending of the inevitable cessation of inventory liquidation could be significant,'' Fed Chairman Alan Greenspan said last week in testimony to lawmakers.
Inflation stayed in check making it easier for central bankers to limit rate increases as the economy rebounds. The GDP price deflator, a gauge of inflation tied to the report, fell at a 0.3 percent annual rate in the fourth quarter. That's the biggest decrease since the first quarter of 1952 and followed a 2.2 percent pace of increase in the previous three months.
Analysts expected a 1.7 percent rate of increase in the GDP price deflator.
Businesses slashed inventories by a record $120.6 billion at an annual in the final quarter of 2001, breaking the previous record of $61.9 billion cut in the previous three months. Falling inventories subtract from GDP because stockpiles come from past, instead of current, production.
Automobile Sales
Automakers took advantage of record sales during the quarter to help empty out dealer lots. Auto loan discounts left a 56-day supply of cars and trucks at the end of last month, down from 77 days a year earlier, the National Automobile Dealers Association said. The drop is leading to production increases this quarter.
``Inventories are very low,'' said General Motors Chief Executive Richard Wagoner in an interview with Bloomberg Television earlier this month. ``So, we actually need to boost production a little bit.''
The company said it plans to make 1.3 million cars this quarter, up from 1.285 million last quarter. Ford projects it will make 1.05 million cars in the first quarter, up from 965,000.
Real final sales, which exclude inventories, rose at a 2.5 percent annual pace in the fourth quarter after dropping at a 0.5 percent pace in the third.
Consumer Spending
The auto industry was one are that benefited from a surge in personal spending, which grew at a 5.4 percent annual pace in the fourth quarter. That was the fastest increase since the first quarter 2000 and followed a 1 percent rate of increase in the previous three months. Consumers spent more on durable goods, which include automobiles, in the fourth quarter than they have at any time in the last 15 years.
While some analysts look for spending to slow from its fourth quarter pace, there are some indications the drop-off may not be severe.
General Motors and Ford said this month consumers are buying more cars and trucks in January than the two largest automakers forecast, buoying their outlook for 2002.
Consumers bought cars and trucks at an annualized rate of about 16 million in the first 10 days of the month, Paul Ballew, executive director of industry and market analysis at General Motors, said in a conference call on Jan. 16. The early sales results are better than the 15 million to 15.5 million annual sales rate automakers predicted for the industry.
Government Spending
Government spending surged at a 9.2 percent annual pace in the fourth quarter, after rising at a 0.3 percent annual rate in the third quarter. Military spending increased at a 9.3 percent rate, almost three times as fast as in the prior three months, as the Bush administration went to war with terrorists in Afghanistan. Non-defense and state and local government spending also increased.
Non-residential fixed investment, which includes spending on commercial construction as well as business equipment and software, fell at a 12.8 percent annual rate in the fourth quarter after falling at an 8.5 percent pace in the third. Spending on non- residential structures, such as office buildings, industrial parks and hotels, declined at a 31 percent rate.
Business investment in equipment and software dropped at a 5.2 percent annual rate, compared with an 8.8 percent pace of decline in the third quarter. EMC Corp., the largest maker of computer data-storage systems, said last week it had a narrower- than-expected fourth-quarter loss after sales fell less than forecast and may return to profitability as soon as the second quarter.
Business Spending
Durable goods orders for computers and electronic products rose 3.5 percent in December, after rising in each of the previous two months, the Commerce Department said yesterday. That's the first time these orders increased for three consecutive months in seven years.
``Companies are eager to invest in anything that can boost productivity and improve profits coming out of a recession,'' said Kenneth Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, before the report.
Exports fell by $34.2 billion and imports dropped by $12.6 billion in the fourth quarter. That left a net trade deficit of $432.6 billion. In the third quarter, the net trade deficit was $411 billion.
Adjusted for inflation, GDP totaled $9.32 trillion in the fourth quarter when measured at an annual rate. In the third quarter, GDP totaled $9.31 trillion.
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