Economy grew at 1.7 percent rate in fourth quarter, better than previously thought

Posted 9:23AM on Thursday 28th March 2002 ( 23 years ago )

WASHINGTON - The U.S. economy, which fell into recession in early 2001, was already bouncing back in the final three months of the year, growing at an annual rate of 1.7 percent. The latest reading on the gross domestic product, the broadest measure of the economy's health, shows the expansion was at a faster pace than the government previously estimated, the Commerce Department said Thursday. The government initially estimated that the economy grew at tiny 0.2 percent rate in the fourth quarter, and a month ago that was revised to a 1.4 percent rate. Thursday's upward revision to the GDP largely reflected an improved trade picture, which was less of a drag on growth in the fourth quarter. While the 1.7 percent growth rate is still considered below par, it nonetheless marks a remarkable turnaround for the economy, which shrank at a 1.3 percent rate in the third quarter, following the jolt of the Sept. 11 terrorist attacks. Many economists estimate the GDP, which measures the total output of goods and services produced within the United States, continues to improve in the current quarter. Merrill Lynch predicts economic growth in the January-March quarter could be at a sizzling rate of 5 percent to 6 percent. Others forecast a rate in the 4 percent range; some expect 3 percent. Growth should be helped along as the Federal Reserve's 11 interest rate cuts last year make their way through the economy. Earlier this month, Fed Chairman Alan Greenspan offered his most optimistic assessment of the U.S. economy in more than a year, telling Congress recovery from the recession that began last March was under way. Manufacturers, which had throttled back production during the slump and laid off hundreds of thousands of workers, worked off big stocks of unsold goods and were beginning to add to production. Against that backdrop, inventory reduction was a little less of a drag on the GDP than previously thought. Inventory liquidation reduced the GDP by 2.16 percentage points in the fourth quarter, compared with a 2.19 percentage points subtraction estimated a month ago. The trade deficit, meanwhile, shaved off 0.14 percentage point from fourth-quarter GDP, compared with the 0.35 percentage point reduction previously estimated. That was the biggest factor in the GDP upward revision. Consumer spending, which accounts for two-thirds of all economic activity in the United States, grew at a 6.1 percent rate, slightly better than the 6 percent rate previously thought and a big pickup from the weak 1 percent rate in the third quarter. But business continued to cut investment in new plants and equipment, a key source of the overall economy's weakness. Economists say companies won't significantly rev up capital investment, production and hiring until corporate profits, which took a huge hit during the slump, improve. Thursday's report showed that after-tax profits of U.S. corporations fell at an annual rate of 10.6 percent in the fourth quarter, even worse than the 6.8 percent rate of decline posted in the third quarter. For all of 2001, after-tax profits fell by 15.9 percent, the first annual drop since 1982. In another report, the Labor Department said new claims for unemployment insurance rose by 18,000 to 394,000 last week, suggesting that demand for some workers is still fragile amid the fledgling recovery. Economists said the National Bureau of Economic Research, the recognized arbiters of when recessions begin and end, could decide that the downturn ended in December, January or February. While one rule of thumb for classifying a recession is two consecutive quarters of declining GDP, something that did not occur in the current downturn, the NBER uses several monthly statistics to better pinpoint the economy's exact turning points.

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