- The Washington Times - Sunday, February 2, 2003

The Commerce Department's advance estimate of economic activity during last year's fourth quarter confirmed the notion advanced several months ago by Federal Reserve Chairman Alan Greenspan: The U.S. economy had hit a soft patch. Gross domestic product (GDP) limped forward at the anemic annual rate of 0.7 percent. It was a sharp deceleration from the third quarter's annual growth rate of 4 percent.
Perhaps most disturbing of all was the fact that consumer spending, which had single-handedly moderated the depth of the 2001 recession and kept the economy's head above water since then, grew by only 1 percent during the fourth quarter. It was the slowest advance in consumer spending since the first quarter of 1993, nearly 10 years ago. Even during the first three quarters of 2001, when GDP declined in each period, consumer spending grew at an average annual rate of 1.8 percent. Meanwhile, the Conference Board reported Tuesday that consumer confidence in January hit a nine-year low.
Had spending for national defense not increased at an annual rate of more than 11 percent during the fourth quarter, overall growth would have been less than a quarter of a percentage point. Exports fell and imports increased; both movements detracted from growth. Moreover, because November's preliminary foreign-trade estimate recorded the largest monthly deficit in history, there is good reason to fear that the meager 0.7 percent growth rate will be revised downward.
Perusing the fourth-quarter numbers for any hint of optimism yielded the fact that business investment what economists call nonresidential fixed investment increased for the first time in nine quarters. Having declined by an average annual rate of more than 6 percent during the previous eight quarters, business investment advanced at a modest annual rate of 1.5 percent last quarter. Inflation-adjusted business investment is still more than 13 percent below the peak it reached during the third quarter of 2000. Speaking of inflation, the Commerce Department reported that its chain-type price index for GDP increased in 2002 by 1.1 percent, its lowest annual rate of increase since 1963.
Thursday's reports of lackluster growth in the fourth quarter and 2002's sharply decelerating GDP inflation rate were not unexpected. This begs a couple of questions. First, while the Fed was not expected to reduce short-term rates at its Tuesday-Wednesday meeting, wouldn't it have been appropriate for the central bank nonetheless to adjust its focus by announcing that the economic risks were "weighted mainly toward conditions that may generate economic weakness?" That's the signal the Fed traditionally sends when concern for a deteriorating economy exceeds worries about inflationary pressures. That clearly is the case today.
The second question relates to White House concerns regarding economic growth in the short run. Glenn Hubbard, chairman of the president's Council of Economic Advisers, recently told Donald Lambro of The Washington Times that he thought blue-chip corporate economists were being "a bit optimistic" in their forecasts for economic growth in the mid-2-percent range for the first quarter. Mr. Hubbard made it very clear that any delay this year by Congress in acting upon the president's short-run stimulus and long-run growth plans posed "very important risks to our economy." Thus, the question: Why, as this page reported Wednesday, is the Republican-controlled Senate expecting to delay passage of tax relief until the middle of September, eight-and-a-half months from now?

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