- The Washington Times - Friday, February 27, 2004


Brisk business spending helped the economy expand at a healthy 4.1 percent pace at the end of 2003, raising hopes that the recovery will be durable and spur more meaningful job growth in the coming months.

The Commerce Department’s latest reading on gross domestic product, released yesterday, showed the economy grew slightly faster in the October-to-December quarter than the 4 percent annual rate estimated a month ago.

GDP measures the value of all goods and services produced within the United States and is an important gauge of the economy’s fitness.

Although the fourth-quarter pace was slower than the breakneck 8.2 percent growth rate registered in the third quarter, the economy’s performance in the second half of last year represented the fastest back-to-back quarterly increases since the first two quarters of 1984.

“The economy is on track to having a good year,” said Mark Zandi, chief economist at Economy.com. “If history is any guide, we should see better job growth in the spring and summer.”

Looking ahead, economic growth in the current January-to-March quarter is expected to clock in at a rate of around 4.5 percent or higher, according to some analysts’ projections. Growth in the April-to-June quarter also should be in that range, some economists believe.

Tax refunds, which the government will start mailing out this spring, along with tax incentives for businesses and decades-low short-term borrowing costs, should provide juice to the economy in the first half of this year, economists said.

Even though the economy is in recovery mode, job growth has been painfully slow.

The economy has lost 2.2 million jobs since President Bush took office in January 2001, a sore spot as he seeks re-election. Democratic presidential contenders have seized on this to make the argument that his economic policies are not working.

Federal Reserve Chairman Alan Greenspan and other economists, however, are hopeful that companies will step up hiring.

“The last worry spot in the economy is the jobs situation,” said Rick Egelton, economist at BMO Financial Group. “But I think we’ll see a rebound this spring. U.S. companies have restructured to get their financial houses in order. Their balance sheets look much better. They are starting to invest again.”

To that end, it was especially encouraging that businesses boosted investment in equipment and software in the fourth quarter at a sizable 15.1 percent annual rate. That was stronger than the 10 percent rate first estimated and was a main factor in the GDP being revised upward for the fourth quarter.

Another factor: Businesses were more aggressive than previously thought in adding to their stockpiles in the fourth quarter. Business inventory building added 0.92 of a percentage point to fourth-quarter GDP, even better than the 0.61 percentage-point increase estimated a month ago. That also was a sign that businesses were betting on stronger appetites for their goods.

A sustained turnaround in capital spending by business is a key ingredient for the economic recovery to be lasting. Deep cuts to such spending thrust the economy into a recession in 2001.

The economy has struggled to get back on firmer footing and finally managed to cast off its lethargy in the second half of 2003. Economists are heartened that businesses appear to be doing more to keep the economy going.

Throughout economic hard times and during most of the recovery consumers have been doing the heavy lifting.

In the fourth quarter, consumers spent modestly and increased their spending at a 2.7 percent annual rate, slightly stronger than the 2.6 percent pace estimated a month ago.

But they trimmed spending on big-ticket goods, such as cars, at a 0.1 percent rate in the fourth quarter, the first decline since the second quarter of 2000.

Although economists believe consumers will keep their pocketbooks sufficiently open to help along the economy, they are still keeping a close eye on their behavior. Some economists worry that consumers — whose confidence in the economy took a hit in February — might turn more cautious.

The University of Michigan reported Friday that its consumer sentiment index slid to 94.4 from 103.8 in January.

An AP-Ipsos consumer confidence index, released earlier this month, and a Conference Board measure released earlier this week also showed consumers felt less confident in the economy in February.

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