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More Power In U.S. Economy

The U.S. economy closed last year in fine form, growing at the fastest rate in nearly 16 years in the final three months of 1999, the Commerce Department said Thursday in its third revision of GDP.

Gross domestic product -- the broadest measure of growth -- rose 7.3 percent, topping Wall Street expectations for 7 percent growth after a previous calculation put fourth quarter growth at 6.9 percent. GDP is the total output of all goods and services produced by labor and property in the United States.

The quarter's clip is the fastest since the first quarter of 1984, when the domestic economy charged ahead by 9 percent.

The strong final-quarter GDP was primarily the result of increases in consumer and government spending and stocking up by businesses on inventories.

Personal consumption expenditures were revised higher to a 5.9-percent increase last quarter, outpacing a 4.9-percent rise in the third period.

Offsetting domestic growth was a rise in imports, which many economists argue proves just how insatiable the U.S. consumer is these days.

It's the torrid pace of demand that has Federal Reserve policy-makers entrenched in an interest-rate tightening mode - borrowing costs have been raised five times in eight months. The Fed is worried that production can't keep up with demand, a formula for inflation.

Still, some observers argue that with inflation remaining under control, the economy should be allowed to fully flex its muscle.

In fact, a key price measure found in Thursday's GDP report, the implicit price deflator for gross domestic purchases was left unversed at a 2.3- percent gain.

The core rate, which excludes food and energy, rose 1.9 percent compared with 1.2 percent in the third quarter. For all of 1999, the deflator rose 1.5 percent compared with just 0.7 percent in the disinflationary year of 1998.

The numbers show that prices are rising from quarter to quarter, but the increases are still very small.

Government spending rose a sharp, upwardly revised, 9.3 percent in the quarter. Exports were revised up, to a 10.1 percent gain, but still lagged the 11.5 percent pickup in the third period. Imports were revised higher, although, they were significantly behind the third quarter's increase - an 8.7-percent gain versus a 14.9-percent gain.

Private fixed investment in the United States rose 10 percent in the final months of the year, but had jumped 13.6 percent in the third period.

In all of 1999, the economy grew at a modestly upwardly revised 4.2 percent, a tad slower than the 4.3 percent pace of 1998 and matching 1997's rate of growth.

©2000 MarketWatch.com, L.L.C

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