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Economy ends 2004 with strong growth

Capital spending by businesses and consumers are the pillars of the advance. The markets are pleased.

WASHINGTON - Like Atlas, consumers have carried the U.S. economy on their shoulders. Now businesses are pulling their weight, too.

Businesses spent more in the final quarter of 2004, helping boost the gross domestic product by an annual rate of 3.8 percent, the Commerce Department reported Friday. The new figure was better than the government's initial estimate of a 3.1 percent growth rate, and the economy seems to be growing at least as fast this quarter.

GDP measures the value of goods and services produced in the United States and is the broadest barometer of the country's economic fitness.

The improvement reflects increased business spending on capital equipment and inventories of goods. The trade deficit also was less of a drag on fourth-quarter growth than initially thought.

Although economic growth in the final quarter of last year was a bit slower than the third quarter's 4 percent pace, the performance was solid.

On Wall Street, the GDP report lifted stocks. The Dow Jones industrials rose 92.81 points to 10,841.60, the best close since Dec. 28.

For the January-to-March quarter, the economy is expected to grow at a rate of around 4 percent, some economists project.

Analysts are hoping that with the economy moving ahead at a good pace, companies will feel more inclined to step up hiring in upcoming months. Economists predict the nation's payrolls will expand by a sizable 225,000 in February, up from January's 146,000 gain. The government releases the February employment report next week.

"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 jobs market was slower to recover from the 2001 recession than other parts of the economy, a source of frustration to job seekers.

President Bush wants the economy and the labor market on firm footing, especially as he tries to sell the country on an overhaul of Social Security. A cornerstone of his plan would let workers set up private investment accounts in stocks and bonds, using payroll taxes to do so. Democrats generally oppose the idea and some Republicans in Congress are wary.

Federal Reserve Chairman Alan Greenspan last week struck a positive note on the economy's performance, telling Congress: "All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation and inflation expectations well anchored."

Fed policymakers are expected to boost short-term interest rates March 22, which would mark the seventh increase since June, to keep the economy and inflation on an even keel.

In the GDP report, businesses clearly did their part to carry the economy in the final quarter of last year. That's especially encouraging because it was deep cuts in companies' capital spending that helped push the country into recession and restrained the subsequent recovery.

Businesses boosted spending on equipment and software at an 18 percent rate in the fourth quarter. That was up from a previous estimate and surpassed the third quarter's 17.5 percent pace.

[Last modified February 26, 2005, 01:14:15]