Economy exceeds the predictions

1.4% growth in GDP buttresses the belief that slump is ending


Propelled by robust consumer and government spending, the U.S. economy surpassed Wall Street's expectations and experienced significant growth in the fourth quarter of 2001, the Commerce Department reported yesterday.

Commerce said its revised calculations showed that the gross domestic product, the total value of goods and services produced in the United States, rose at an annual rate of 1.4 percent from October to December. That growth contrasted with the government's initial estimate last month of an increase of 0.2 percent, and it exceeded the 0.9 percent gain projected by a consensus of economists.

Yesterday's figures were released after a series of economic indicators that pointed to a strengthening of the economy. This week alone, reports showed that orders for durable goods rose 2.6 percent in January, exceeding analysts' expectations, and existing-home sales surged 16.2 percent in January.

Economists said that yesterday's figures gave further credence to the belief that the U.S. economy has reached a bottom and that the recession, which began in March 2001, is ending.

"We do think that this report is consistent with other information that we had seen that suggested that the recession is now in the rear-view mirror," said John Youngdahl, senior economist at Goldman, Sachs & Co. "We don't know exactly which month will be the bottom, but we believe it will probably be either December or January."

The unexpectedly strong signs of economic growth underscored the viewpoint of Alan Greenspan, the Federal Reserve chairman, who told the Senate Banking Committee Wednesday that the economy appeared to be stabilizing. Economists are beginning to predict greater strength for the economy in the first quarter of 2002.

"For now I'm looking at a growth rate in the vicinity of 3 percent," said Jade Zelnik, chief economist at Greenwich Capital Markets. "It does appear that the recession has ended, and now the question is more what the strength of the recovery will be."

Investors got another dose of better-than-expected economic news yesterday from the Chicago Purchasing Managers' Index, which measures manufacturing activity in the Midwest. In February, the index rose to 53.1 percent from 45.1 in January. That represents the first growth in the manufacturing industry in 18 months. A reading above 50 indicates growth, while a reading below 50 indicates contraction.

The 1.4 percent growth rate in the gross domestic product is the strongest showing since the fourth quarter of 2000. In contrast, the economy shrank by 1.3 percent in the third quarter of 2001, Commerce said.

Consumer spending on big-ticket items was responsible for much of the economy's growth, resulting in the biggest surge in personal spending in 15 years. Real personal consumption expenditures, for both durable and nondurable goods, increased by 6 percent in the fourth quarter, up from an increase of 1 percent in the third quarter.

Sales of durable goods, items built to last three years or more, were spurred in large part by zero-percent financing that was offered on automobiles. In the fourth quarter, sales of durable goods surged by 39.2 percent, up from 0.9 percent in the third quarter, the department said.

Government spending also was responsible for much of the growth.

During the fourth quarter, federal and state government spending and investment jumped 10.1 percent, compared with an increase of 0.4 percent in the third quarter. Much of the increase in government spending was directly related to the U.S. military campaign in Afghanistan.

The increases in personal consumption expenditures and government spending were partially offset by decreases in private inventory investment, nonresiden- tial fixed investment, exports and residential investments. Imports, which are subtracted in the calculation of the GDP, decreased as well.

For the year, real gross domestic product increased 1.2 percent, compared with an increase of 4.1 percent in 2000, Commerce said.

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