Economy Growing Despite Housing, Autos

GDP Up 3.5% In 4th Quarter; Consumer Spending Also Up Late Last Year

(AP)  The economy snapped out of a sluggish spell and grew at a faster-than-expected 3.5 percent pace in the final quarter of last year as consumers ratcheted up spending despite a painful housing slump.

The fresh snapshot of business activity, released by the Commerce Department Wednesday, underscored the resilience of the economy; it has managed to keep on moving despite the ill effects of the residential real-estate bust and an ailing automotive sector.

The economy's performance in the October-to-December quarter, which followed two quarters of rather listless activity, exceeded analysts' forecasts for a 3 percent growth rate.

The economy opened 2006 on a strong note, growing at a 5.6 percent pace, the fastest spurt in 2½ years. But it lost steam during the spring and late summer. It grew at a 2.6 percent pace in the second quarter and then a weaker 2 percent pace in the third quarter. The fourth-quarter's rebound ended the year on a positive note.

For all of 2006, the gross domestic product (GDP) increased by 3.4 percent. That was an improvement from a 3.2 percent showing in 2005 and was the best performance in two years.

That's even more impressive considering the economy was hit by the housing slump. Investment in home building for all of last year was slashed by 4.2 percent, the most in 15 years.

GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic standing.

"Housing and autos hit the economy with their best punch, and the economy is still standing. It is dancing," said Stuart Hoffman, chief economist at PNC Financial Services Group.

President Bush, who had a trip to New York scheduled Wednesday to discuss the economy, was certain to point to the GDP figures as evidence that his policies are working and benefiting most Americans. But Democrats, now in control of Congress for the first time in a dozen years, counter that economic inequality is widening and that it's harder for America's middle class to get ahead.

An AP-Ipsos poll in early January found that 55 percent of Americans disapproved of the president's handling of the economy, while 43 percent approved.

In other economic news, employers' costs to hire and retain workers moderated, which could ease concerns about the development of inflation pressures. Wages and benefits rose 0.8 percent in the fourth quarter, down from a 1 percent rise in the third quarter, the Labor Department reported.

Spending on construction projects around the country dropped 0.4 percent in December, after edging up in November, mostly reflecting fallout from the housing slump, the Commerce Department said in another report.

In the GDP report, consumers spent more freely in the fourth quarter, a major factor behind the rebound in overall economic activity. Consumer spending grew at a 4.4 percent annual rate, up from a 2.8 percent pace in the third quarter and the strongest since the opening quarter of 2006.

An improvement in the nation's trade picture helped by stronger U.S. export growth also was a factor in the overall GDP boost.

More brisk government spending also helped the fourth-quarter GDP. Government spending increased at a 3.7 percent pace in the final quarter, up from a 1.7 percent growth rate in the third quarter. Federal spending on national defense rose at a rate of 11.9 percent in the fourth quarter, the most since the spring of 2003, when the country went to war with Iraq.

All those positive contributions to GDP helped to blunt some negative forces.

Investment in home building during the fourth quarter plunged at a rate of 19.2 percent, even worse than the 18.7 percent drop in the prior quarter. Both were the worst drops in 15 years.

The drop in residential building in the fourth quarter shaved 1.16 percentage points off GDP. In the third quarter, it sliced a bigger 1.20 percentage point off of overall economic growth. That led to hope that the damage to the economy from the housing slump might be easing a bit.

In the troubled automotive sector, a pullback in car and truck production shaved 1.17 percentage points off fourth-quarter GDP.

Businesses, meanwhile, trimmed investment in equipment and software. They also didn't invest as much in building their inventories as they had in the previous quarter.

An inflation gauge tied to the GDP report showed that core prices — excluding food and energy — rose at a rate of 2.1 percent in the final quarter of last year, down from a 2.2 percent pace in the third quarter.

Even with the slight improvement, underlying inflation is running higher than the Federal Reserve would like. For all of 2006, core inflation rose by 2.2 percent, up from 2.1 percent in 2005.

The Federal Reserve, wrapping up a two-day meeting Wednesday, is widely expected to hold a key interest rate steady at 5.25 percent. The Fed has left rates alone since August, following a two-year stretch of rate increases, the longest in Fed history. Economists believe the Fed is on course to achieve its goal of slowing the economy sufficiently to thwart inflation but not so much as seriously hurt economic activity.

[processor2]

The headline should have read:

The Economy Growing despite the Democrat"ic"s "doom and gloom" rhetoric.

............

[dredre2k]

Thankfully, our economy is still standing even after the assault on the Middle class that the Bush administration & republican congress have wrought during the last 6 years; the american economy & its people have been remarkably resiliant. We are a strong nation; able to maintain a functional economy, pay for the useless wars in two countries, AND survive during the time that 3 dollar gas gave oil companies the highest quarterly profits ever!

The businesses in the economy are only gaining due to the enormous amounts of tax rollbacks, cuts, and incentives given to businesses, oil and other corporations over the years.

Home sales are still declining due to the the middle class being collectively being priced out of the market in many areas of the country. No matter how good the economy seems to be doing, we need to be concerned that home sales are still plunging. It's a lot harder for many middle class families now adays due to rising energy prices, higher mortgage interest rates & home prices.
Don't let the rosy forecasts for the economy fool you. What's the use of a good economy if there are no good homes available within reach of the average family.

[Syndicate]

coffeehead: Nice try at Doom and Gloom. I know for a fact that some of the things you say are wrong. Some of it is correct but said in such a way to imply a negative consequence. for example "the economy has 10,000 fewer manufacturing jobs than a year ago." Why is that a bad thing? At some point in the near future thier will be no such thing as a "manufacturing job". I'm actually kind of happy 10,000 people got out of a dead end job stuffing pc boards and what not and got into bartending and waitering. You can make a hell of killing in tips. Which is rarley reported or taxed. I miss my tips :( Every where I look I see Americans becomeing wealthier and welthier. Even the poor have bigscreen tvs and cell phones.

[olebd]

Coffeehead - nice post. Couple that with the ever growing influence of the Euro. If it gains the upper hand, we are sunk.

[processor2]

The headline should have read:

The Economy Growing despite the Democrat"ic"s "doom and gloom" rhetoric.

............

[coffeehead-2009]

The US pays its current account deficit by giving up ownership of its existing assets or wealth. Foreigners don%u2019t simply hold the $800 billion in cash. They use it to acquire US equities, real estate, bonds, and entire companies.

The federal budget is also in the red to the tune of about $400 billion. As Americans have ceased to save, the federal government is dependent on foreigners to lend it the money to operate and to wage war in the Middle East.

American consumers are heavily indebted. The growth of consumer debt is what has been fueling the economy. Social Security and Medicare are in financial trouble, as are many company pension plans. Decide for yourself%u2014is this the economic picture of a superpower that can dictate to the world, or is it the picture of a second-rate country dependent on foreigners to finance its consumption and the operation of its government?

[coffeehead-2009]

During 2001 and 2002 the US economy lost 2,298,000 jobs. These lost jobs were not regained until early in February 2005. From February 2005 through April 2006, the economy has gained 2,584 jobs (mainly in domestic services).

The total job gain for the 64 month period from January 2001 through April 2006 is 7,000,000 jobs less than the 9,600,000 jobs necessary to stay even with population growth during that period. The unemployment rate is low because millions of discouraged workers have dropped out of the work force and are not counted as unemployed.

In 2005 the US had a current account deficit in excess of $800 billion. That means Americans consumed $800 billion more goods and services than they produced. A significant percentage of this figure is offshore production by US companies for American markets.

The US current account deficit as a percent of Gross Domestic Product is unprecedented. As more jobs and manufacturing are moved offshore, Americans become more dependent on foreign made goods. This year the deficit could reach $1 trillion.

[coffeehead-2009]

Keep saying it --- the subliminally mute will come.....


The Bureau of Labor Statistics payroll jobs report released May 5 says the economy created 131,000 private sector jobs in April. Construction added 10,000 jobs, natural resources, mining and logging added 8,000 jobs, and manufacturing added 19,000. Despite this unusual gain, the economy has 10,000 fewer manufacturing jobs than a year ago.

Most of the April job gain%u201472%%u2014is in domestic services, with education and health services (primarily health care and social assistance) and waitresses and bartenders accounting for 55,000 jobs or 42% of the total job gain. Financial activities added 26,000 jobs and professional and business services added 28,000. Retail trade lost 36,000 jobs.

[gslinger3]

Thank you George W Bush and the Repulican led congress of the past 6 years for bringing our economy back to being envy of other nations.

The Bad news is, we now have a Democratic lead congress who is taking dead aim at nothing else but your pocket book, thus killing the positive ecomomic gains in the economy and the record breaking stock market gains we have enjoyed.
The only hope the economy has is for President Bush to veto the upcoming tax hikes, and for the Republican party to boldly reinstate strong CONSERVATIVE leadership and philosophy and get back the Congressional majority status it lost last November.

[processor2]

The headline should have read:

The Economy Growing despite the Democrat"ic"s "doom and gloom" rhetoric.

............

[ghosttownsky]

Speaking as a small business owner the biggest inflationary pressure I have comes from higher interest rates. Unfortunately I am unable to pass this cost on to my customers. This also makes competing with foreign companies more difficult.

I guess it is ok for institutions that loan money to have uncontrolled inflation that only shows up in other businesses.

What is the Fed%u2019s point of view?

[perception5]

The Great USA economy !!!!!!!!!!!!!! The greatest story never told by our corrupt liberal MSM wolfpack............