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U.S. Economy Growth Rate Slows

A surge in imports slowed the booming U.S. economy to a 3.9 percent annual growth rate in the fourth quarter, the Commerce Department reported Friday.

This was slower than the government's advance estimate of a 4.3 percent growth rate. In the third quarter, the economy grew at a 3.1 percent annual rate.

"There is no big surprise in the GDP report, but it's modestly positive for bonds and for stocks, and sets a nice tone," said Hugh Johnson, chief investment officer at First Albany.

Wall Street analysts had forecasted a revised fourth quarter GDP growth rate of 3.8 percent.

The revised report showed inflationary pressures stayed at a 34-year low. The implicit price deflator held steady at 1.4 percent, the same as in the third quarter.

The Asian financial crisis boosted imports, the largest sector subtracting growth from overall GDP. Real imports of goods and services jumped by 6.4 percent in the last quarter as the dollar surged against foreign currencies.

Exports of goods and services advanced by 10 percent last quarter after rising 4.4 percent in the third quarter.

Other sectors that slowed the economy's growth were business investments and federal government non-defense expenditures.

Consumer spending surged, increasing by 3.1 percent in the fourth quarter. This contributed to almost half the total gain in GDP growth.

The biggest gains in personal expenditures came from spending in the service sector. Spending on nondurable goods actually fell by 1 percent after a 4.3 percent gain in the third quarter. Purchases of durable goods slowed to a 1.7 percent rise after a 18.4 percent gain in the previous quarter.

The GDP report is revised twice every quarter. The latest change, the first revision, left the GDP increase for the full year unchanged at 3.8 percent, a nine-year high. The gross domestic product, unadjusted for inflation, was $8.08 trillion.

Analysts believe the slowdown in Asian economies will also push U.S. economic growth down to around 2.5 percent in 1998.

By Margaret Coker
©1998 MarketWatch.com, L.L.C

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