Weakest Economy In Five Years

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The U.S. economy, hit by a plunge in spending on cars and computers, grew at an annual rate of just 1.4 percent during the final three months of 2000, the weakest performance in more than five years.

The anemic performance of the gross domestic product — the total output of goods and services produced within the United States — was below even the scaled-down expectations of many private analysts. They were forecasting a growth rate of around 2.2 percent, matching the performance in the third quarter.

The weak showing in the fourth quarter, reported Wednesday by the Commerce Department, underscored how dramatically the economy had slowed since the second quarter of last year, when it grew by a breakneck 5.6 percent rate.

Federal Reserve Chairman Alan Greenspan last week warned Congress that the economy has likely weakened further, saying growth in the current quarter is probably "very close to zero."

Greenspan did not rule out the threat of a recession, saying the country's first downturn in a decade could occur if consumers became so rattled that they stopped spending.

On Tuesday, the Conference Board reported that its closely watched consumer confidence index suffered its fourth straight monthly decline, falling in January to the lowest level in more than four years.

The Fed was meeting Wednesday and analysts were predicting it would reduce interest rates by another one-half percentage point in an effort to prevent the economy from slipping into a recession. The Fed has already cut interest rates by a half point in a surprise move on Jan. 3.

President Bush contends more needs to be done to rev up the economy, especially passage of his $1.6 trillion tax-reduction proposal. Last week Greenspan gave his blessing to cutting taxes, saying the government's budget surplus projections had grown so large there should be money available to both eliminate the public debt and provide a significant tax cut.

Even with the dramatic slowdown in the second half of the year, the economy grew by 5 percent in 2000, the best showing since a 7.3 percent increase in 1984.

That growth in 2000 capped a remarkable four-year period in which growth ever year was above 4 percent, the best performance since the mid- 1960s. But now with the sudden slowdown in activity, economists have begun to fear that the nation's nearly 10-year-old economic expansion, the longest in history, may be in danger of ending.

The Fed from June 1999 through May of last year had been increasing interest rates to slow the economy and keep inflation under control.

An inflation gauge tied to the GDP rose at annual rate of 2.2 percent in the fourth quarter, up from a 1.8 percent rate in the third quarter. For all of 2000, this gauge which measures the price increases on consumer goods was up 2.4 percent, the highest since 1993.

The 1.4 percent growth rate in the fourth quarter was the weakest since a 0.8 percent rate of growth in the second quarteof 1995.

Consumer spending, which has been an engine for the economy, grew at an annual rate of 2.9 percent in the fourth quarter, the weakest pace since the second quarter of 1997, and down sharply from a 4.5 percent rate in the third quarter.

Spending on big-ticket durable goods on cars and other costly manufactured goods expected to last at least three years actually fell at an annual rate of 3.4 percent in the fourth quarter, compared with a strong 7.6 percent rate of growth in the third quarter.

The slowdown in the economy has resulted in thousands of layoffs in various industries. Automakers have laid off workers and have shut down plants in an effort to cope with a big supply of unsold cars.

For the second straight quarter there was a drop in housing construction, which fell at a rate of 2.5 percent in the fourth quarter after a 10.6 percent plunge in the third quarter.

Business investment on new plants and equipment, a key force behind the economic expansion, decreased at a rate of 1.5 percent. That was the biggest decline since a 2 percent drop in the fourth quarter of 1991 as the economy was pulling out of the last recession. In the third quarter, such spending grew at a 7.7 percent rate. The weakness in the fourth quarter came from a sharp drop in spending on computers and other equipment.

All the changes show the economy growing at an annual rate of $32 billion in the fourth quarter, pushing the country's total output of goods and services to $9.4 trillion, after adjusting for inflation.

By Jeannine Aversa
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