WASHINGTON - The U.S. economy, propelled by the biggest surge in consumer spending on big-ticket goods in 15 years, grew at an annual rate of 1.4 percent in the final quarter of 2001, the government reported Thursday.
The bigger-than-expected increase in the gross domestic product, the broadest measure of the economy's health, could mean that economists will date the end of the recession around the end of last year or the beginning of this year.
The revised reading on fourth-quarter GDP as reported by the Commerce Department is much stronger than the 0.2 percent growth rate estimated by the government a month ago.
Many economists were forecasting a revised 0.9 percent rate of advance in the GDP, which measures the total output of goods and services produced within the United States.
The 1.4 percent growth rate marked the economy's strongest performance in a year and came after the economy shrank at a 1.3 percent rate in the third quarter.
The latest reading on GDP comes one day after Federal Reserve Chairman Alan Greenspan told Congress the country is recovering from the recession that began in March. Though the recession may turn out to be one of the country's mildest, Americans shouldn't anticipate a robust rebound, he cautioned.
That's because consumers, the lifeblood of the economy, kept buying throughout the slump, so they will have less pent-up demand, meaning their spending probably won't rise as quickly as in past rebounds.
Many economists are estimating the economy in the current January-March quarter at a rate of 1.5 percent to 3 percent.
In another report, the Labor Department said new claims for unemployment benefits rose by 17,000 to 378,000 last week. But the more stable four-week moving average of claims, which smoothes out week-to-week fluctuations, fell to a six-month low of 373,250, a sign that the economy is improving.
Consumers, whose spending accounts for two-thirds of all economic activity in the United States, ratcheted up spending on costly manufactured goods, such as cars, at a rate of 39.2 percent in the fourth quarter. That was the biggest increase since the third quarter of 1986.
Total spending by consumers rose at a brisk 6 percent rate in the fourth quarter, the largest gain since the second quarter of 1998. The government had previously estimated consumer spending rose at a 5.4 percent rate in the final three months of 2001.
Robust consumer spending powered the economy in the fourth quarter and has been a main reason the economy hasn't sunk into a deeper recession.
Another factor contributing to the stronger fourth-quarter GDP was more brisk government spending, which rose at a rate of 10.1 percent, compared with a 0.3 percent growth rate in the third quarter.
And, the trade deficit in the fourth quarter was less of a drag on the economy than the government previously thought. The deficit reduced fourth-quarter GDP by 0.35 percentage point, rather than 0.85 percentage point as initially reported.
Businesses continued to cut back on spending on new plants and equipment and in the fourth quarter they reduced such investment at a rate of 13.1 percent, one of the biggest reasons for the economy's weakness.
To cope with the slump, companies have sharply cut production and capital investment, especially on high-tech equipment, and let workers go.
Companies reduced excess stocks of unsold goods in the fourth quarter at a record rate of $120 billion, another factor holding back economic growth. While inventory liquidation reduces the GDP, economists say companies must get rid of excess stocks before they can crank up production in the future.
To revive the economy, the Federal Reserve slashed interest rates 11 times last year. But Fed policy-makers last month decided to keep rates unchanged, citing mounting signs of a recovery. Many economists believe the Fed's aggressive rate cutting will help the economy return to healthy rates of growth in the second half of this year.
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January 11th, 2025
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