The trumpets continue to blow to deaf ears:
U.S. Economy Grew at 1.4% Annual Rate in Fourth Quarter, Fastest in Year
from Bloomberg
Washington, Feb. 28 (Bloomberg) -- The U.S. economy expanded in the fourth quarter at the fastest pace in a year, reflecting more consumer purchases of American-made goods and the biggest government spending increase since 1978.
Gross domestic product, the total value of all goods and services produced in the nation, rose at a revised 1.4 percent annual rate from October to December, the Commerce Department said. The pace was faster than the 0.2 percent rate of increase reported by the government last month and exceeded the 0.9 percent rise expected by analysts.
U.S. companies were able to clear unwanted inventories at a record pace last quarter as Americans increased spending on U.S.- made automobiles, appliances and other big-ticket items. That's prompting manufacturers including General Motors Corp. to raise production, which will likely lead to faster growth this quarter and may make this the mildest post-war recession on record.
``We have a recession in name only,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. ``The change from this massive inventory drawdown to modest inventory building will re-ignite manufacturing'' and help strengthen the economy in coming months.
The economy entered a recession in March of last year, according to the National Bureau of Economic Research, a private, non-profit group that charts the economy. The group uses a broader definition of recession than the conventional two quarters of declining GDP often cited by economists.
Past Recessions
Since World War II, the committee has never declared a recession for a period in which GDP has contracted no more than a single quarter.
Last quarter's rise was the largest since a 1.9 percent rate of increase in the final three months of 2000. It followed a 1.3 percent pace of decline in the prior three months and a 0.3 percent rise in the second quarter.
The economy grew at a 0.2 percent annual rate from March to December, according to Bloomberg News calculations. That compares with an average 2.6 percent annual rate of decline in the first 10 months of the previous nine recessions and is the only increase.
A separate report from the Labor Department showed initial jobless claims held below 400,000 for an eighth straight week. That's the longest since the recession was just beginning in March- April of last year and a sign the pace of firings is slowing. Claims rose by 17,000 last week to 378,000. The prior week's level of 361,000 was lower than previously reported.
Greenspan
Because the downturn was less severe, the expected recovery may not be as strong as previous rebounds from recessions, Federal Reserve Chairman Alan Greenspan said in testimony before Congress yesterday.
The U.S. economy is ``close to a turning point,'' Greenspan said. ``An array of influences unique to this business cycle, however, seems likely to moderate the speed of the anticipated recovery,'' he said.
Policy makers expect the economy will grow 2.5 percent to 3 percent this year. That compares with an average 7 percent rate of growth for the year following the previous nine contractions.
Consumer spending grew at a 6 percent annual pace in the fourth quarter, up from the 5.4 percent rate reported last month. That was the fastest pace since the second quarter of 1998. Spending for automobiles and other durable goods increased at a 39.2 percent annual rate during the three months, the strongest pace since a 39.7 percent rise in the third quarter of 1986.
Production Plans
Stronger-than-expected spending so far this year is leading some companies to forecast improved earnings and accelerated production this year.
General Motors this week raised its forecast for industry sales this year by about 1 million vehicles to 16 million and said it would build 5.1 million cars and trucks this year, 100,000 more than originally planned.
The automaker increased first-quarter production by 20,000 vehicles to 1.34 million, up 10 percent from a year earlier. For the second quarter, General Motors expects to build 1.425 million vehicles, up 4 percent.
Government spending rose at a 10.1 percent annual pace in the fourth quarter, the strongest since an 11.1 percent rate in the second quarter of 1978. Federal government spending rose at the fastest pace since the second quarter of 2000. State and local government spending rose at the fastest pace since a 12.3 percent rate of increase in the second quarter of 1978.
Government Spending
Increases in government spending are likely for the remainder of the year, and that will contribute to the expected recovery, analysts said.
President George W. Bush's budget for the next fiscal year includes increased spending to fight terrorism. Under the proposals, the defense budget increases by $48 billion, or more than 14 percent, to $379 billion, and money for homeland security is doubled. The increase is focused on military pay raises and the purchase and development of new equipment.
Businesses trimmed inventories at a record pace in the fourth quarter, today's report showed. Stockpiles fell by $120 billion at an annual pace, less than the $120.6 billion reported in the advance report. The drop was twice the previous record of $61.9 billion set in the third quarter.
Declining stockpiles are helping to stabilize business even among some companies in the beleaguered telecommunications industry. Qualcomm Inc., the owner of patents for mobile telephones used by 103 million people, said this week that profit this quarter will meet its forecast because of increased demand for newer semiconductors used in wireless devices.
Trade Balance
``We do not see excess inventories in either phones or chips,'' said William Keitel, the company's chief financial officer in a conference with investors Monday. The level of chip inventories ``is quite appropriate given the expectations carriers have going forward.''
Real final sales, which include inventories, rose 3.6 percent at an annual rate compared with a 2.5 percent increase in the advance report and followed a 0.5 percent decline in the third quarter.
Meantime, imports dropped as spending increased. That meant that consumers bought more U.S.-made goods and services, helping to revive the economy. Imports fell by $26 billion in the fourth quarter, more than twice the $12.6 billion drop estimated by the Commerce Department last month while exports fell by $33.6 billion, less than the previous $34.2 billion estimate. That left a net trade deficit of $418.5 billion in the fourth quarter.
Investment in Equipment
Non-residential fixed investment, which includes spending on commercial construction as well as business equipment and software, fell at a 13.1 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, dropped at a 32.6 percent rate.
Business investment in equipment and software declined at a 4.8 percent annual rate, compared with an 8.8 percent pace of decline in the third quarter.
Inflation stayed in check making it easier for central bankers to hold off on raising interest rates 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.
Adjusted for inflation, GDP totaled $9.34 trillion in the fourth quarter when measured at an annual rate. In the third quarter, GDP totaled $9.31 trillion.
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Best Regards, J.T. |
