Cleaning & Restoration Breaking News

Good news: GDP gains, recovery seen

January 31, 2002
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WASHINGTON -- The U.S. economy grew in the final three months of 2001, defying expectations for a contraction and despite the recession, as consumers purchased new cars and the government beefed up spending. The fourth quarter-tally of gross domestic product, the broadest measure of the economy's health, strengthened belief that an economic recovery had commenced.

The U.S. Commerce Department this week said the GDP rose at an inflation-adjusted annual rate of 0.2 percent in the fourth quarter. Private economists had predicted it would shrink 1 percent.

The data bolstered expectations Federal Reserve officials will leave interest rates unchanged at a 40-year low when they wrap up a two-day policy-setting meeting later on Wednesday.

The economy has been in recession since March, but the downturn could turn out to be one of the mildest in the post-World War II period. The only negative quarter for GDP during the current slump occurred in the third quarter, when it contracted 1.3 percent.

Fourth-quarter GDP was bumped into the plus column by rising government spending amid the war in Afghanistan, and as consumers seized on zero-percent financing for new automobile purchases. Amid strong consumer spending, companies ran through a massive $120.6 billion worth of inventories, the largest drop on record.

GDP during all of 2001 grew 1.1 percent, the weakest performance since a 0.5 percent decline in 1991 in the midst of the last recession a decade ago. Experts said the fourth-quarter's enormous depletion of inventories bodes well for an economic rebound. Companies will need to crank up production to replace the goods that have been flying off store shelves and showroom floors, fueling GDP growth in future quarters.

On the other hand, consumer spending could possibly have ''borrowed'' some growth from the current first quarter as fewer people will now need to buy new cars.

Total consumer spending jumped 5.4 percent in the fourth quarter, the biggest increase since the first quarter of 2000 when the economy was booming. Led by car-buying, spending on consumer durable goods skyrocketed 38.4 percent, the biggest jump in more than 15 years.

Meanwhile, government spending grew 9.2 percent in the fourth quarter, the biggest rise in 15 years. Exports of goods sank 12.4 percent, while imports slid 3.4 percent.

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