- The Washington Times - Thursday, January 30, 2003

WASHINGTON, Jan. 30 (UPI) — The Commerce Department said Thursday the U.S. economy, as measured by the gross domestic product, expanded at a 0.7-percent annual pace during the fourth quarter after expanding by 4 percent in the third quarter of last year.

The fourth quarter growth was the slowest pace since the third quarter of 2001.

Economists on Wall Street were expecting GDP to expand at a 0.09-percent clip in the final quarter of 2002.

The GDP expanded at a 1.3-percent annual pace during the second quarter of 2002 and expanded 5 percent in the first quarter of last year.

For all of 2002, GDP — the total output of goods and services produced in the United States — expanded 2.4 percent, after growing 0.3 percent in 2001 and 3.8 percent in 2000.

GDP is the broadest measure of aggregate economic activity and encompasses every sector of the economy.

Investors watch the report because it is the consummate measure of economic activity. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn't mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road to inflation.

By tracking economic data like GDP, investors will know what the economic backdrop is for these markets and their portfolios.

Analysts noted the GDP report contains information that not only paints an image of the overall economy, but tells investors about trends within the big picture. GDP components like consumer spending, business and residential investment and price inflation indexes illuminate the economy's undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.

The latest report showed consumer spending rose at a 1-percent annual pace in the final quarter after rising at a 4.2-percent rate in the third quarter.

The report showed the decline in spending was paced by a 7.3-percent drop in spending on durable goods such as automobiles.

Spending on services rose at a 1.3-percent pace in the quarter after rising at a 2.3-percent rate in the third quarter.

Real final sales, which exclude inventories, rose 1.3 percent, compared with a 3.4-percent increase the previous quarter.

Business fixed investment, which includes spending on commercial construction as well as equipment and software, rose at a 1.5-percent annual rate in the fourth quarter after falling at a 0.8-percent pace in the third quarter.

Business investment in plants and other structures dropped at a 9.3-percent annual rate, after plunging 21.4 percent during the third quarter.

The report also showed imports rose by $14.2 billion in the fourth quarter while exports fell by $4.7 billion. That left a net trade deficit of $506.9 billion compared with a $488 billion gap in the third quarter.

Government spending rose at a 4.6-percent annual pace during the final quarter of 2002 after rising at a 2.9-percent annual rate in the previous three months.

Spending on residential construction rose 6.8 percent after rising 1.1 percent in the third quarter.

The GDP price deflator, a gauge of inflation tied to the report, rose at a 1.8-percent annual rate in the fourth quarter after rising at a 1-percent pace in the third quarter. The personal consumption expenditure deflator rose at a 1.9-percent rate faster than the 1.7-percent pace posted in the third quarter.

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