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GDP Up 4% In Q4, Short Of Forecasts But Still Solid Gain
The U.S. economy grew a solid 4% last quarter, the Commerce Department said Friday, settling to a more sustainable pace after the third quarter's torrid 8.2%. While consumer spending growth slowed markedly, broad-based gains in business investment, exports, inventory building and housing kept the economy cruising. Growth in the second half averaged an impressive 6.1%. For the year, GDP grew 3.1% vs. 2.2% in 2002 and 0.5% in 2001. Treasuries rallied after growth came in slower than the 5% that Wall Street expected. The 10-year yield fell 6 basis points to 4.13%. But the GDP report, along with sizzling Chicago factory activity in January, did more to reinforce growth expectations for the coming year than to raise any doubts. "It's really confirming the economy is on a sustained growth path," said Ethan Harris, chief U.S. economist at Lehman Bros., noting most forecasters had been expecting closer to 3% growth a few months ago. Harris sees GDP growth of 4.5% this year. His confidence about 2004 has more to do with business spending than the consumer. With profits surging, inventories depleted and demand on the rise, companies have the means and the need to boost investment and hiring. Companies increased inventories a less-than-expected $6.1 billion annual rate after inventories declined $9.1 billion in the third quarter. That added 0.6 percentage point to GDP. With inventories still near record low levels relative to sales, inventories have plenty of room to rise and should help boost growth this year, Harris said. Most economists agree, but Donald Straszheim of Straszheim Global Advisors suggested hopes for an inventory rebound may be a bit overblown. "Companies are holding more inventories overseas - with production," Straszheim wrote. He added, "Technology is still helping companies run leaner than in the old days - last month, last year, last decade." Business spending on equipment and software rose 10% in the fourth quarter after surging 17.6% in the third. Commercial construction is one area that's yet to rebound, falling 3% in the fourth quarter. Including that drop, fixed business investment still rose 6.9% vs. the third quarter's 12.8%. Residential construction spending rose 10.6% following a 21.9% jump in the third quarter. Growing business investment typically precedes a jobs rebound. "I think it's going to be a slow turn to healthy job growth," Harris said. One reason: the rapid rise in benefits costs, which rose 6.3% last year, the most since 1990. Exports, fueled by a weaker dollar and stronger global growth, surged at a seven-year-high 19.1% rate. That more than offset an 11.3% rise in imports and added 0.2 percentage point to GDP. Surging exports are one reason that factory output has rapidly been recovering lost ground. On Friday, the National Association of Purchasing Management-Chicago said its regional factory activity gauge surged 4.7 points in January to 65.9, the highest level since July 1994. Readings over 50 signal expansion. Regional production grew at its fastest rate in two decades, while new orders grew the most since July 1994. But Midwest factories continued to shed jobs. Elsewhere in the GDP report, consumer spending grew 2.6%, a bit less than expected, after the third quarter's 6.9%, the best in 17 years. The Commerce Department said disposable personal income grew $1.7 billion in the fourth quarter after surging $161.8 billion in the third, thanks to tax cuts and rebates. Durable goods spending rose just 0.9% vs. the prior quarter's 28% gain. Nondurable spending rose 4.4%, down from 7.3%. Spending on services rose 2.1%, down from 2.8%. But savings as a share of disposable income fell to 1.5% in the fourth quarter, from 2.3% in the third. "Since 1945, we have never had a savings rate this low coming out of recession," Straszheim wrote. Fortunately, the consumer will get some help this spring, netting about $40 billion from lower tax payments and bigger refunds. Back to Original Article: Mortgage News You Can Use
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