Fourth-quarter growth stronger than forecast

GDP rose at 3.8% rate

Businesses spent heavily on equipment, inventories

February 26, 2005|By Robert Manor | Robert Manor,CHICAGO TRIBUNE

The economy grew more rapidly in the final three months of last year than had been thought, the government reported yesterday, and economists said growth could be good this year, too.

The gross domestic product rose at a 3.8 percent annual rate in the final quarter, significantly more than the government estimated last month, when the Commerce Department forecast a 3.1 percent increase. The GDP is the measure of all goods and services produced in 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 had been thought.

The fourth-quarter GDP growth was a bit slower than the third quarter's 4 percent. For the January-to-March quarter, some economists expect a return to a 4 percent growth rate.

"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."

The Commerce Department said much of the strength was in expenditures for software and equipment, including computers.

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.

Brisk investment

Such brisk investment was stoked partly by companies that took advantage of a temporary provision, which expired at the end of last year, 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, other buildings and building up supplies of goods also were stronger in the fourth quarter than had been thought.

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

The GDP grew 4.4 percent last year, its strongest showing in five years, despite a surge in imports, which tends to depress it.

Employment has been a weak point for the economy, as relatively strong growth has not created many jobs.

Hopes for hiring

Analysts hope that with the economy moving ahead at a good pace, companies will step up hiring. Economists predict that the nation's payrolls will expand by 225,000 this month. The gain in January was 146,000. The government will release the February employment report Friday.

"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 Chicago Tribune is a Tribune Publishing newspaper. The Associated Press contributed to this article.

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