Economy hit temporary rut in last quarter
Published March 31, 2006
WASHINGTON - The economy was lethargic in the final quarter of 2005, but fresher readings suggest a rebound since then.
Gross domestic product grew at an annual rate of 1.7 percent in the October-to-December quarter, the Commerce Department reported Thursday. It was the most sluggish showing in three years but better than the 1.6 percent estimated a month ago.
The slight upgrade reflected stronger inventory building by businesses than previously thought.
Stephen Stanley, chief economist at RBS Greenwich Capital, summed up the fourth-quarter performance as "pretty dismal," but he added, "Of course we, along with everyone else, look for a snapback" in the January-to-March quarter.
The Federal Reserve is of the same mind.
Private analysts predict growth during this period will clock in at a brisk pace of 4.5 percent or higher, to be followed by a period of moderation, a 3.4 percent pace, in the April-to-June quarter.
Gross domestic product measures the value of goods and services produced within the United States and is considered the best gauge of the economy's performance.
On Wall Street, the Dow Jones industrials lost 65 points to close at 11,150.70.
Federal Reserve chairman Ben Bernanke and his colleagues said this week that the economy has emerged from the doldrums and has "rebounded strongly" in the January-to-March quarter. "But (it) appears likely to moderate to a more sustainable pace," the board said.
Fed policymakers chalked up the fourth quarter's mediocre performance to mostly "temporary or special factors" - an assessment shared by private economists who likened it to a temporary breather rather than a sign of troubles ahead.
The fourth quarter marked a big loss of momentum from the third quarter's zippy 4.1 percent pace.
The slowdown was blamed on fallout from the Gulf Coast hurricanes and elevated energy prices.
Consumer spending grew at a pace of 0.9 percent, the weakest since the first quarter of 1995.
The main culprit was a cut in spending on big-ticket goods, such as cars.
Cuts in spending by government contributed to the fourth quarter's weak performance.
Overall business investment, which includes spending on residential and commercial projects and on equipment and software, however, grew at a pace of 16.1 percent, the strongest since the second quarter of 2004.
An inflation gauge closely watched by the Federal Reserve showed that core prices, excluding food and energy, rose at a 2.4 percent pace in the fourth quarter. That was higher than the 2.1 percent previously reported and marked a substantial pickup from the third quarter's 1.4 percent pace.
"The Fed will remain on inflation watch," observed Joel Naroff, president of Naroff Economic Advisors.
To fend off inflation, Bernanke, at his first meeting as Fed chairman on Tuesday, boosted a key interest rate to 4.75 percent and hinted of further increases. In doing so, Bernanke and his colleagues hewed closely to the rate-raising script of predecessor Alan Greenspan.
Economists predict another rate increase will come at the Fed's next meeting, May 10.
[Last modified March 31, 2006, 01:08:15]
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