U.S. economy slows to 0.7 percent rate

[chequita guevara]

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By JEANNINE AVERSA



Jan. 30, 2003 | WASHINGTON (AP) -- The U.S. economy slowed dramatically in the final quarter of last year, growing at a annual rate of just 0.7 percent as consumers turned cautious in the face of war worries, a rollercoaster stock market and a stagnant job climate and increased their spending by the smallest amount since 1993.

The meager rise in gross domestic product in the fourth quarter of 2002 came after the economy grew at a respectable 4 percent rate in the third quarter, the Commerce Department reported Thursday.

GDP measures the total value of goods and services produced within the United States and is considered the broadest barometer of the economy's health.

The performance -- weaker than the 0.9 percent increase analysts were predicting -- gave the fourth quarter the distinction of being the worst quarter for GDP in 2002. It also marked the weakest showing since the economy actually shrank at a 0.3 percent rate in the third quarter of 2001 as the country was mired in its first recession in a decade.

Although the economy ended 2002 on a sour note, for all of 2002 the economy grew by a decent 2.4 percent. While that marked a big improvement over the tiny 0.3 percent rise registered in 2001, it was still considered weaker-than-normal growth for the U.S. economy.

The economy, knocked down by a recession that began in March 2001, has been struggling to get back on sure footing. Economic growth has been uneven, with a quarter of strength, followed by a quarter of weakness. That has presented challenges for President Bush, who wants to get the economy back to full throttle and doesn't want economic woes to linger as he gets ready for his 2004 re-election bid.

To help jolt economic growth, Bush has offered a 10-year, $674 billion tax-cut proposal. Democrats have their own, smaller-scale plans.

The Federal Reserve decided Wednesday to hold a key interest rate at a 41-year low of 1.25 percent, with the hope that will spur consumers and businesses to spend and invest more, bolstering economic growth. The Fed slashed interest rates a whopping 12 times, starting in January 2001, with the last rate reduction coming in November 2002, in a bid to energize the listless economy.

Consumers have been virtually the sole source of support keeping the economy going.

But in the fourth quarter of 2002, they grew tired. Consumer spending, which accounts for two-thirds of all economic activity in the United States, grew up a rate of just 1 percent in the final quarter of last year. That was down from a brisk 4.2 percent growth rate in the third quarter and marked the worst showing since the first quarter of 1993.

All of the weakness in consumer spending in the fourth quarter reflected a sharp cut in spending on “durable” goods, big-ticket manufactured products such as cars and appliances. Consumers reduced such spending at a 7.3 percent rate. That was a big turnaround from the astounding 22.8 percent rate of increase in the third quarter and marked the largest cutback in spending on durable goods since the first quarter of 1991.

Economists were predicting consumers would lose some of their appetite for spending in the face of worries about a possible war with Iraq, a lackluster job market and a turbulent stock market.

In other economic reports from the Labor Department, workers' wages and benefits grew by 0.7 percent in the last three months of 2002 following a 0.8 percent gain in the previous quarter. And, new claims for unemployment benefits last week rose by a seasonally adjusted 14,000 to 397,000.

Still, most economists believe consumers will keep their pocketbooks and wallets sufficiently open to prevent the economy from backsliding into a new recession.

For the economy to get back on sure footing, a sustained turnaround in business investment is necessary, economists say.

Businesses, worried about a war and other uncertainties, have been in no mood to go on hiring sprees or buying binges when it comes to capital investments in plant and equipment.

But there was some encouraging news in the fourth quarter on this front. After eight straight quarters of cutting capital spending, businesses boosted such investment at a 1.5 percent rate in the fourth quarter. That was an improvement over the 0.8 percent rate of decline in the third quarter and marked the best showing since the third quarter of 2000.

All of the strength, however, came from spending on equipment and software. Companies continued to cut investment in new plants and buildings.

Businesses, however, added less to their stockpiles of unsold goods in the fourth quarter, resulting in a 0.6 percentage-point reduction to GDP. The bloated trade deficit also was a drag on fourth-quarter economic growth.

An inflation gauge tied to the GDP rose at a 1.9 percent rate in the fourth quarter, up a bit from the 1.7 percent rate in the third quarter as oil prices rose amid war worries. Still the latest reading suggests inflation is under control.

[DinoDoc]

I take it the job search hasn't been going to well.

[chequita guevara]

Originally posted by DinoDoc
I take it the job search hasn't been going to well.

Nope. I'm keeping my fingers crossed about a couple positions here in town, though.

[Tripledoc]

What about the house prices, have they gone up, down or are they stable? Have they shown a history of increase in prices over the last ten years?

[chequita guevara]

So much for Fez's predictions of a resurgent economy.

[DinoDoc]

Originally posted by chegitz guevara
Nope. I'm keeping my fingers crossed about a couple positions here in town, though.

Good luck. Here's hoping the "capitalist pig-dogs" see the worth of your talent.

[DuncanK]

We could be facing a double dip recession. Those can be particularily dangerous and show that there are serious problems in the economy.

To really get us out of this the capitalists will have to reorganize the means of production to create a new growth industry to lead us out of these troubled times. Either that our demand can be stimulated, but that will only be a temporary remedy.

The capitalists seem to be having some trouble creating this new leading industry, probably because there is not viable technology to do so. Will Bush's tax cuts help the capitalists do this? No, that will only increase liquididty. There is already too much liquididty in the economy. Certainly enough to create a new growth industry. The capitalists need an idea. Without an idea this excess liquidity could cause a liquididty trap. That is where interest rates drop so far that people sell off interest earning assets and even withdrawal money from the banking system.

Greenspan will become powerless and the government will be our only hope

[Arrian]

Best of luck finding a job, ya commie bastid.

-Arrian

[lord of the mark]

Originally posted by Tripledoc
What about the house prices, have they gone up, down or are they stable? Have they shown a history of increase in prices over the last ten years?

theyve boomed (or bubbled depending on your POV) the last decade. they've come down recently, but not in the hottest markets, leading some to beleive theres real potential for a crash.

Mr. Guevara lives in Jacksonville,FL where, IIRC , there is an endless supply pine barrens constantly being "improved" with ticky tack houses, so housing is always cheap.

[chequita guevara]

Housing is definately cheap here, but lacking employment, I'm not really in the market for a house. Heck, practically anywhere in Florida except for the beaches and islands is pretty darned cheap.

[Tripledoc]

About new housing.
Without any reference to anything other than Athens and maybe other Greek city states.
Aristoteles said that one method a tyrant can stay in power is by driving the population into the countryside to live there. Then there would not be so many angry people loitering around the tyrants mansion.