U.S. Economy Slows In 4th Quarter
The economy hit a soft patch in the final quarter of 2005, growing at an annual rate of just 1.7 percent, an ominous statistic but for fresher readings that suggest America's business health has improved and is mostly sound.
While the latest figure for gross domestic product in the October-to-December period was indeed anemic and marked the worst performance in three years, the new reading actually turned out to be slightly better than the 1.6 percent growth rate estimated a month ago, according to the Commerce Department's report released Thursday.
The 1.7 percent pace matched analysts' expectations. The slight upgrade for the quarter reflected stronger inventory building by businesses than previously thought.
The Federal Reserve and other economists say the economy bounced back smartly in the current January-to-March quarter. Private analysts predict growth during this period will clock in at a brisk pace of 4.5 percent or higher. Then economic activity will moderate to around a 3.4 pace in the April-to-June quarter.
Gross domestic product measures the value of all goods and services produced within the United States and is considered the best gauge of the economy's performance.
In other economic news, the Labor Department reported the new claims filed for unemployment benefits last week dropped by 10,000 to 302,000, another sign that the labor market is strengthening. The decline left claims at a lower level than economists had forecast.
Federal Reserve Chairman Ben Bernanke and his colleagues said Tuesday that the economy has snapped out of its end-of-year doldrums and has "rebounded strongly" in the January-to-March quarter. "But (it) appears likely to moderate to a more sustainable pace" going forward, the board said.
Fed policy makers chalked up the fourth quarter's mediocre performance to mostly "temporary or special factors" — an assessment that was shared by private economists who likened the final quarter of 2005 to a temporary breather rather than a sign of prolonged economic troubles ahead.
The 1.7 percent growth rate in the fourth quarter marked a big loss of momentum from the third quarter's zippy 4.1 percent pace.
The fourth quarter's slowdown was blamed on lingering fallout from the Gulf Coast hurricanes and elevated energy prices, which especially caused consumers to tighten their belts.
Consumer spending in the final quarter of 2005 grew at a pace of just 0.9 percent, the weakest since the first quarter of 1995. A cut in spending on big-ticket goods, such as cars, was the main culprit behind the lethargic showing in overall consumer spending.
Cuts in spending by government also contributed to the fourth-quarter's weak performance.
Overall business investment — which includes spending on residential and commercial projects and in equipment and software, however, grew at a speedy pace of 16.1 percent in the fourth quarter, the strongest since the second quarter of 2004.
An inflation gauge closely watched by the Federal Reserve showed that core prices — excluding food and energy — rose at a 2.4 percent pace in the fourth quarter. That was higher than the 2.1 percent growth rate previously reported for the period and marks a substantial pickup from the third quarter's 1.4 percent pace.
To fend off inflation, Bernanke, at his first meeting as Fed chairman on Tuesday, boosted a key interest rate to 4.75 percent and hinted further increases were possible. In doing so, Bernanke and his colleagues hewed closely to the rate-raising script written by former chairman Alan Greenspan.
Economists predict another rate increase will come at the Fed's next meeting May 10.
Fresher economic barometers, meanwhile, have flashed good signs for the economy.
The jobs market is improving, with companies adding a sizable 243,000 positions in February. The nation's unemployment rate of 4.8 percent, meanwhile, is close to a 4½-year low reached in January.
Americans' optimism in the economy rebounded in March, climbing to a nearly four-year high, the Conference Board reported Tuesday.
Still, those things haven't helped President Bush's standing with the public. He has been mired in some of the lowest job-approval ratings of his presidency, according to polls.
Thursday's report also showed companies' profit growth gaining ground in the fourth quarter of 2005. One measure of after-tax profits in the GDP report showed profits increased by 13.8 percent, a turnaround from the third quarter's 4.3 percent decline.
By Jeannine Aversa