ICS Magazine

Consumer spending moving upward

March 1, 2002
WASHINGTON--Consumer spending grew at a rate of 6 percent during the fourth quarter, propelled by gains in consumer and government spending and supporting wide belief the U.S. economy is on the road to recovery.

But analysts are warning that despite this largest increase since a 6.2 percent hike in the second quarter of 1998, consumer spending, which is key to stabilizing the soft economy, could slip as confidence erodes and the job market remains weak.

Spending on durable goods spending shot up its highest rate in 15 years, 39.2 percent. Still, there was ample evidence in the Gross Domestic Product (GDP), the broadest gauge of the economy's health, report that the business sector is still weak.

Business spending on new plants and equipment plunged 13.1 percent, a bigger decrease than the 12.8 percent decline first estimated and the fourth straight quarterly decline.

Meanwhile, government spending grew 10.1 percent in the fourth quarter, up from the 9.2 percent rate first estimated and also the biggest rise since an 11.1 percent gain in the second quarter of 1978.

Still, the U.S. economy grew much faster than initially thought in the fourth quarter of 2001. The GDP expanded at a revised 1.4 percent annual rate in the final three months of last year, seven times the 0.2 percent rate first estimated, the government said.

While consumers and the government spent more in the last three months of 2001, businesses cut back. That business spending, analysts say, is a key ingredient for a strong recovery.

Analysts say enormous depletion of inventories strengthens their conviction that an economic recovery is at hand, as companies will need to step up production to replace the goods that have been flying off store shelves and showroom floors, fueling GDP growth in future quarters.