Output sets best pace in 2 years

GDP grew by 5.6% in fourth quarter, beating expectations

`Continues to roar ahead'

Rapid expansion may signal fading of global crisis' effects

The Economy

January 30, 1999|By BRIDGE NEWS

WASHINGTON -- The U.S. economy expanded much faster than expected in the fourth quarter last year, amid signs that the effects of the economic crisis in Asia and other developing countries may be beginning to fade.

The Commerce Department said yesterday that U.S. gross domestic product, the total output of goods and services, grew by 5.6 percent in the fourth quarter, the strongest pace in more than two years.

The fourth-quarter growth rate was up sharply from an unrevised 3.7 percent pace in the third quarter, and well above the 4.1 percent growth rate that most economists were expecting.

For last year, the U.S. economy grew at a 4.1 percent pace, up from a 3.8 percent rate in 1997.

The Commerce Department said the sharp acceleration in growth in the fourth quarter stemmed largely from a rebound in exports and business investment.

Net exports of goods and services subtracted only $3.9 billion from the gross domestic product in the fourth quarter, the government said, the smallest drag on the economy since the fourth quarter of 1996.

"The Asian situation hit rock-bottom in 1998, and our exports are not decelerating as much," said Veronika White, economist with First Union Bank. "This economy continues to roar ahead."

Economists said the performance of the U.S. economy remains remarkable because consumers continue to spend heartily despite the problems affecting the global economy, and inflation has continued to decline to levels not seen in three decades.

Consumer spending, which accounts for two-thirds of all U.S. economic activity, rose by 4.4 percent in the fourth quarter and 4.8 percent for the year -- the strongest annual gain in more than a decade.

Inflation, as measured by a gauge known as the gross domestic product implicit price deflator, rose by only 0.8 percent, down from 1.0 percent in the third quarter and the smallest quarterly rise since 1959.

"This very rapid growth comes without an inflation hangover, and tells us that in the final analysis, the U.S. economy prospered despite the Asia crisis and an emerging recession in Latin America," said John Lonski, senior economist with Moody's Investors Service Inc.

Analysts noted that the economy benefited from some gains in the fourth quarter that won't likely be repeated in coming quarters -- most noticeably an 18.8 percent jump in exports, which was powered by a surge in commercial aircraft sales.

Although it is unlikely that the export picture will remain that bright this year, the widening of the trade gap should slow from the pace seen in recent years, economists said.

Gross domestic product was also lifted by a surge in nonresidential investment that probably won't be repeated soon, as the spending was likely tied to purchases of high-tech computer equipment to help solve Year 2000 computer problems, economists said.

Analysts said the strong economic growth in the fourth quarter could keep the Federal Reserve from cutting interest rates further. The Fed trimmed key U.S. rates three times late last year to help buffer the U.S. economy from the strains in the global economy.

"The Fed doesn't want to risk overheating the economy or adding to the speculative bubble in the stock market," Lonski said.

Pub Date: 1/30/99

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