- The Washington Times - Friday, January 30, 2004

Economic growth fell by half to a 4 percent annual rate at the end of last year as consumers took a respite after pushing spending on cars and other items to a 17-year high during the summer, the Commerce Department reported yesterday.

Despite worries prompted by the sharp deceleration of growth on Wall Street, a more recent economic indicator suggests the consumer pullback was only temporary. Consumer spirits picked up again this month to a three-year high, according to a sentiment index published yesterday by the University of Michigan. It showed growing optimism about the stock market and the economy.

Consumers are the backbone of the economy; their spending constitutes two-thirds of purchasing activity. But the commerce report showed help from other engines of growth that have emerged in recent quarters.

Exports soared by 19 percent during the fourth quarter, a second straight double-digit gain that indicated the substantial weakening of the dollar in the past two years is boosting the allure of American-made products overseas.

Business spending on software, computers and other equipment also increased by 10 percent, posting a third quarter of strong gains. And housing construction, which has been booming for years because of extraordinarily low interest rates, surged by 11 percent after racking up a stunning 22 percent gain in the summer.

“Today we received news that the economy is strong and getting stronger,” President Bush said after meeting with Wall Street and business economists at the White House. “These economists are optimistic about our future and so am I.”

Mr. Bush’s Democratic opponents said little about the growth report, which showed a steady rise in growth to 3.1 percent in 2003 from 2.2 percent in 2002 and 0.5 percent in 2001, when the economy was in recession.

Democrats continued to hammer home the point that few jobs have been created for the 8 million people looking for work despite sometimes strong growth spurred by tax cuts.

“The president assured America for three years that his tax cuts would create millions of new jobs,” said House Democratic Whip Steny H. Hoyer, Maryland Democrat.

“At some point, the president and the Republican Congress must stop the excuses and acknowledge that their job-creation plan, which is made up of cheerleading and extending tax cuts, is no real plan at all.”

Yesterday’s report left open the question of whether the economy will see a resumption of job growth this year. Some economists worry that the slowdown from the 8.2 percent growth rate set during the summer quarter does not bode well for jobs.

“It looks like some of the energy simply fizzled out” at the end of the year, said Bill Cheney, chief economist with John Hancock Financial Services Inc.

“It’s hard not to be somewhat concerned,” he said. “If 8.2 percent growth didn’t generate new jobs, less than half that growth wasn’t about to do the trick either. … Until the economy is generating new jobs, we simply don’t have enough growth.”

Edward Yardeni, chief investment strategist with Prudential Securities, said he is not too worried about the loss of momentum in consumer spending at the end of the year, which prompted modest declines in stock prices yesterday.

“Spending should accelerate during the first half of the year — thanks to tax-refund checks,” he said. Many taxpayers are expected to get money back when they file their tax returns this year as a result of the lower income-tax rates enacted by Congress last year.

Jerry Jasinowski, president of the National Association of Manufacturers, celebrated the robust gains in exports and business spending in the second half of the year, which sparked a revival of activity at the nation’s factories after a long slump.

“For the first time since the third quarter of 1999, both exports and business investment … increased at double-digit rates,” together accounting for 60 percent of economic growth in the final quarter, he said.

Mr. Jasinowski expects the strong rebound in manufacturing to continue this year, with the beleaguered sector outperforming the overall economy with a 6 percent rate of growth. That could help to recover some of the 2.8 million manufacturing jobs lost in recent years, he said.

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