The Commerce Department released its first estimate of fourth-quarter economic activity yesterday, and, upon first inspection, the results fell somewhat short of expectations. Compared to the consensus view among economists that the quarter’s annual growth rate for gross domestic product (GDP) would range between 5 percent and 5.5 percent, the reported rate came in at 4 percent. Subsequent perusal of the data, however, suggests that the recovery remains strong.
For example, incorporated in the higher projected growth rate was the expectation that firms would rebuild their depleted inventories at a much more rapid rate than they did. The fact that inventories did not rise as much as expected simply means that the inventory rebuilding process will likely occur during the early part of this year, accelerating the first quarter’s growth rate. Thus, the fourth quarter’s actual growth rate of final demand, which excludes changes in private inventories, met expectations.
In addition, even though the 4 percent GDP growth rate in the fourth quarter represented a deceleration from the 8.2 percent annual pace achieved during the third quarter, the average annual growth rate over the second half of last year still exceeded 6 percent. Not since the first two quarters of 1984 has the economy experienced such growth over any six-month period, including the economic boom of the second half of the 1990s.
Economic growth during 2003, measured on a fourth-quarter-over-fourth-quarter basis, was a solid 4.3 percent. That was the fastest growth rate since 1999, and it was nearly double the 2.2 percent growth rate of 2000.
Personal consumption expenditures increased by 2.6 percent in the fourth quarter. That represented a deceleration from the 6.9 percent increase achieved during the previous quarter, which was the highest in six years. Business investment, which experienced nine consecutive quarters of decline beginning in the first quarter of 2001, increased for the third quarter in a row. The housing boom continued, with residential investment rising at an annual rate of more than 10 percent for the second quarter in a row. And exports, reflecting the decline in the value of the dollar, were more than 6 percent higher in the fourth quarter of 2003 than they were a year earlier.
The disappointment in the economy remains employment growth. Even though the economy grew at a 6 percent annual rate during the second half of 2003, fourth-quarter nonfarm payrolls were less than 0.01 percent higher than the second quarter’s. And despite the 4.3 percent growth rate during all of 2003, nonfarm employment in 2003’s fourth quarter was nearly a quarter of a million jobs below the level of 2002’s fourth quarter. By way of comparison, the 4.7 percent growth rate during 1999 generated more than 3.1 million net new jobs. Amid the promise of growth, the labor market remains a disappointment.
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