Martin Wolk: Eye on the Economy
Economy grows at a 4% annual rate
Fourth-quarter GDP comes in lower than expectedBy Martin Wolk
Chief economics correspondent
MSNBC
Updated: 3:14 p.m. ET Jan. 30, 2004The economy grew at a 4 percent rate in the fourth quarter, a sharp slowdown from the sizzling 8.2 percent third-quarter pace but still good enough to show a broadening recovery likely to last through the year.
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The preliminary report on the nation's gross domestic product came in slightly below the 4.8 percent rate projected by analysts, although some suggested the figure could be revised upward when final details are collected in coming months.
For the full year, the economy grew by 3.1 percent after adjusting for inflation, its best performance since 2000, and analysts generally expect solid growth of about 4.5 percent this year.
"It was a little light but still a solid quarter nonetheless," said said Mark Zandi, chief economist at Economy.com. "If was not quite what you had hoped for, but good enough."
Consumer spending, which accounts for more than two-thirds of economic activity, grew at a modest 2.6 percent rate in the quarter, down from the outsized 6.9 percent in the third quarter, when pocketbooks were fattened by a round of federal tax cuts and a wave of mortgage refinancing.
But spending on business equipment, which plummeted during the economic downturn that began in 2001, rose at a solid 10 percent rate in the quarter -- down from 17.6 percent in the third quarter, but still an indication that the expansion is becoming more balanced, said Sung Won Sohn, chief economist at Wells Fargo.
"Businesses are gradually regaining confidence," he said in a note. Growing demand should eventually lead to "significant employment gains" -- the long-awaited missing piece of the slow-motion expansion.
Although the economy grew at a 6 percent rate in the second half of the year, the economy added only 278,000 jobs from August through December, far less than the 150,000 a month needed just to keep pace with growth in the labor force.
Any job growth at all was a welcome improvement from the previous 30 months when the economy shed 2.3 million jobs, sending the unemployment rate to a nine-year high of 6.4 percent. But economists and policy-makers would like to see much better job growth, preferably beginning with the monthly report due Feb. 6, to ensure that the economy is staying on track for a sustainable recovery even after the stimulus of tax cuts and low interest rates fades.
GUIDE Key economic indicators
Click an indicator name to learn more
Period Latest Prev.
• Consumer Confidence Jan.* 96.8 91.7
• Retail sales Dec.* 0.5% 1.2%
• GDP Q4* 4.0% 8.2%
• ISM Index Dec.* 66.2 62.8
• Factory Orders Nov.* -1.4% 2.4%
• Unemployment Rate Dec. 5.7% 5.9%
• Employment situation Dec.* 1,000 43,000
• Consumer inflation Dec. 1.1% 1.1%
• Housing starts Dec.* 2,088,000 2,054,000
• Home sales Dec.* 7,530,000 7,167,000
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CONSUMER CONFIDENCE
Recent figures
Jan.* 96.8
Dec. 91.7
Nov. 92.5
Oct. 81.7
Sept. 77.0
Aug. 81.7
July 77.0
June 83.5
May 83.6
April 81.0
March 61.4
Feb. 64.8
What is it?
Consumer confidence is considered important because consumer spending accounts for more than two-thirds of U.S. economic activity. The monthly Conference Board survey is one of the two most closely watched indicators of sentiment. Based on a mail-in survey sent to about 5,000 households. Results are converted to an index and expressed in comparison to the 1985 average of 100.
Source: The Conference Board
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RETAIL SALES
Recent figures
Dec.* 0.5%
Nov. 1.2%
Oct. 0.0%
Sept. -0.3%
Aug. 1.0%
July 1.4%
June 0.9%
May 0.5%
April -0.3%
March 2.3%
Feb. -1.4%
Jan. 03 0.4%
What is it?
A broad measure of consumer spending trends. Includes sales of motor vehicles, clothing, food at both grocery stores and restaurants, electronics, building materials drugs and other items. Expressed as a percent change from previous month, adjusted for seasonal variations but not price changes.
Source: Census Bureau
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GDP
Recent figures
Q4* 4.0%
Q3 8.2%
Q2 3.3%
Q1 2003 1.4%
Q4 1.4%
Q3 4.0%
Q2 1.3%
Q1 2002 5.0%
Q4 2.7%
Q3 -0.3%
Q2 -1.6%
Q1 2001 -0.6%
What is it?
The gross domestic product is the broadest measure of the economy, comprising the value of all goods and services produced in the United States. It is reported quarterly with frequent revisions. Generally expressed as a percentage change from the previous quarter in "real" or inflation-adjusted terms. Economists presume real GDP is capable of growing at an annual rate of about 3.5 percent over the long term. When GDP declines over a sustained period of time the economy is considered to be in recession.
Source: Bureau of Economic Analysis.
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ISM INDEX
Recent figures
Dec.* 66.2
Nov. 62.8
Oct. 57.0
Sept. 53.7
Aug. 54.7
July 51.8
June 49.8
May 49.4
April 45.4
March 46.2
Feb. 50.5
Jan. 03 53.9
What is it?
The first major indicator reported each month, considered a reliable assessment of how the manufacturing sector is performing. Based on a survey of executives done by the Institute for Supply Management, formerly known as the National Association of Purchasing Management. Responses are compiled and reported as an index number. A reading above 50 percent indicates the manufacturing sector is expanding, while a reading below 50 indicates it is shrinking.
Source: Institute for Supply Management
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FACTORY ORDERS
Recent figures
Nov.* -1.4%
Oct. 2.4%
Sept. 1.4%
Aug. -0.3%
July 2.0%
June 1.9%
May 0.3%
April -2.6%
March 1.5%
Feb. -0.5%
Jan. 03 1.6%
Dec. 0.3%
What is it?
Data on new orders for manufactured goods, adjusted for seasonal variation, offer a good indicator of the manufacturing sector's health, closely watched because it is the most volatile part of the economy. Expressed as percent change from previous month.
Source: Census Bureau.
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UNEMPLOYMENT RATE
Recent figures
Dec. 5.7%
Nov. 5.9%
Oct. 6.0%
Sept. 6.1%
Aug. 6.1%
July 6.2%
June 6.4%
May 6.1%
April 6.0%
March 5.8%
Feb. 5.8%
Jan. 03 5.7%
What is it?
One of the best known and most politically powerful economic indicators, the rate is calculated from a monthly survey among a sample of about 60,000 households. The rate is adjusted for seasonal variations, but unlike most economic statistics it is never revised.
Source: Bureau of Labor Statistics.
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EMPLOYMENT SITUATION
Recent figures
Dec.* 1,000
Nov. 43,000
Oct. 100,000
Sept. 99,000
Aug. 35,000
July -57,000
June -83,000
May -76,000
April -22,000
March -151,000
Feb. -121,000
Jan. 03 158,000
What is it?
Represents the month-to-month change in jobs on payrolls of the nation's business, government and non-profit establishments. Generally considered a more accurate indicator of labor market health than the unemployment rate. Analysts estimate the economy should add about 150,000 jobs monthly to keep up with the nation's growing work force. Based on a sample of 300,000 establishments employing nearly a third of the nation's workers, the figure is adjusted for seasonal variations and frequently revised.
Source: Bureau of Labor Statistics.
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CONSUMER INFLATION
Recent figures
Dec. 1.1%
Nov. 1.1%
Oct. 1.3%
Sept. 1.2%
Aug. 1.3%
July 1.5%
June 1.5%
May 1.6%
April 1.5%
March 1.7%
Feb. 1.7%
Jan. 03 1.9%
What is it?
The most widely known and used measure of inflation, the Consumer Price Index is based on the price of a "basket"of goods including food, beverages, fuel, medical care and clothing. Value refers to year-over-year change in "core" prices, excluding volatile food and energy categories.
Source: Bureau of Labor Statistics.
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HOUSING STARTS
(seasonally adjusted annual rate)
Recent figures
Dec.* 2,088,000
Nov. 2,054,000
Oct. 1,977,000
Sept. 1,931,000
Aug. 1,831,000
July 1,890,000
June 1,844,000
May 1,745,000
April 1,627,000
March 1,742,000
Feb. 1,640,000
Jan. 03 1,828,000
What is it?
A good indicator to assess demand for housing and construction industry health. Represents the number of new residential buildings, including single-family and multifamily homes, where construction was started. Expressed as a seasonally adjusted annual rate. Construction was started on 1.7 million new residential structures in 2002, the highest level since 1986.
Source: Census Bureau.
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HOME SALES
(seasonally adjusted annual rate)
Recent figures
Dec.* 7,530,000
Nov. 7,167,000
Oct. 7,499,000
Sept. 7,809,000
Aug. 7,650,000
July 7,275,000
June 7,030,000
May 6,931,000
April 6,854,000
March 6,538,000
Feb. 6,795,000
Jan. 03 7,029,000
What is it?
One of the bright spots of the economy in recent years, driven at least in part by historically low mortgage rates. Figure represents the sum of new and existing single-family home sales, expressed as a seasonally adjusted annual rate. In 2002, a record 6.5 million homes were sold.
Sources: National Association of Realtors, Census Bureau
* preliminary figures • Print this
In another encouraging sign, businesses boosted inventories, which they had been keeping lean, in the fourth quarter. That added 0.61 percentage point to the GDP last quarter, a turnaround from the 0.13 percentage-point reduction to GDP seen in the third quarter.
Businesses, however, trimmed spending on new plants and other buildings at a 3 percent rate in the fourth quarter, deeper than the 1.8 percent rate of decline seen in the third quarter. Economists say that a sustained turnaround in capital investment is a necessary ingredient for the recovery to be lasting.
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Consumers showed less of an appetite to spend on big-ticket items, such as cars in the fourth quarter — after spending lavishly on such “durable goods” in the previous quarter.
Consumers’ spending in the third quarter was supported by the extra cash from the president’s third round of tax cuts and from a refinancing boom — that has since cooled.
Spending on home building and other residential projects rose at 10.6 percent rate in the fourth quarter. While that was down from a whopping 21.9 percent growth rate in the third quarter, it nevertheless underscored the important support role the housing market has played in the economic recovery.
Also adding to GDP last quarter: government spending on national defense rose at a 1.8 percent rate. That contrasted with a 1.3 percent rate of decline in the third quarter.
The Associated Press contributed to this report.
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