- The Washington Times - Friday, February 25, 2005

ASSOCIATED PRESS

The economy clocked in at a 3.8 percent pace in the final quarter of 2004 — faster than initially thought — and is now cruising at that speed or better. That could be good news for jobless people hoping for companies to increase hiring.

In the newest reading on the economy’s fitness, the gross domestic product exceeded a previous estimate of a 3.1 percent annual growth rate for the October-to-December quarter, the Commerce Department reported yesterday. GDP measures the value of all goods and services produced within the United States.

The improvement reflected more robust spending by businesses on capital equipment and on inventories of goods. The trade deficit also was less of a drag on fourth-quarter growth than initially thought.

Although economic growth in the final quarter of last year was a bit slower than the third quarter’s 4 percent, the performance was still solid.



“We are now at a comfortable cruising altitude,” said Lynn Reaser, chief economist at Banc of America Capital Management. “What is significant is that all parts of the economy were pulling their own weight.”

In another development, sales of previously owned homes slipped 0.1 percent in January from the previous month to a seasonally adjusted annual rate of 6.8 million units, the National Association of Realtors reported. Even with the dip, sales remained healthy.

For the current January-to-March quarter, the economy is expected to grow at a rate of around 4 percent, some economists project.

Analysts are hoping that with the economy moving ahead at a good pace, companies will feel more inclined to step up hiring in upcoming months. Economists predict the nation’s payrolls will expand by a sizable 225,000 in February, which would be up from January’s 146,000 gain. The government releases the February employment report next week.

“With decent momentum entering the New Year, we should soon be generating the kind of job growth that will make the expansion feel like good times,” said Bill Cheney, chief economist at John Hancock Financial Services. The jobs market was slower to recover from the 2001 recession than other parts of the economy, a source of frustration to job seekers.

President Bush wants the economy and the labor market on firm footing, especially as he tries to sell the country on an overhaul of Social Security. A cornerstone of his plan would let workers set up private investment accounts in stocks and bonds, using a majority of their payroll taxes to do so. Democrats generally oppose the idea and some Republicans in Congress are wary as well.

Federal Reserve Chairman Alan Greenspan last week struck a positive note on the economy’s performance, telling Congress: “All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well anchored.”

Fed policy-makers are expected to boost short-term interest rates March 22, the seventh increase since June, to keep the economy and inflation on an even keel.

In the GDP report, businesses clearly did their part to carry the economy in the final quarter of last year. That’s especially encouraging because it was deep cuts in companies’ capital spending that helped push the country into recession and restrained the subsequent recovery.

Businesses boosted spending on equipment and software at a 18 percent rate in the fourth quarter. That was up from a previous estimate and surpassed the 17.5 percent pace in the third quarter.

Such brisk investment was stoked partly by companies taking advantage of a temporary provision, which expired at the end of 2004, allowing them generous write-offs on capital equipment, analysts said. Some economists questioned the vigor of future capital spending with that stimulus gone.

Business investment in new plants and other buildings, as well as in building up supplies of goods also were stronger in the fourth quarter than previously thought.

Consumer spending grew at a solid 4.2 percent pace in the final quarter. That was down a bit from the government’s initial estimate as well as the 5.1 percent growth rate registered in the third quarter. During the recovery, the economy was largely carried by consumers.

“We had a nice handoff from the final quarter of last year, and a good starting point for this year,” said Tim O’Neill, economist at Bank of Montreal.

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