US economy shrugs aside 11 September to grow 1.4% in final quarter

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The Independent Online

The American economy smashed even the most optimistic expectations yesterday, posting the strongest growth for a year despite the impact of the 11 September terrorist attacks.

The American economy smashed even the most optimistic expectations yesterday, posting the strongest growth for a year despite the impact of the 11 September terrorist attacks.

The US government revised its initial estimate for a paltry 0.2 per cent growth in the final three months of 2001 to 1.4 per cent. Although meagre by US standards, it was much stronger than had been forecast by analysts, who are now pencilling in growth of 2 or even 3 per cent for the current quarter.

On Wall Street, share prices jumped while the dollar gained on the news that the US appeared to have suffered one of its smallest recessions in history.

"It shows that the economy is out of recession," said Larry Wachtel, senior vice-president at Prudential Securities. "It is a good number and ... the market is celebrating a little bit."

The new figures showed that the economy had been boosted by a surge in consumer spending as shoppers and homebuyers took advantage of interest rates of 1.75 per cent.

The 6 per cent surge in household expenditure appears to be unprecedented for a period of general economic slowdown.

Meanwhile, government spending grew 10.1 per cent in the fourth quarter, up from the 9.2 per cent rate first estimated and the biggest rise since the second quarter of 1978.

The better-than-expected growth is likely to put Federal Reserve officials at ease and add to expectations that they will leave interest rates unchanged when they meet this month. The figures supported the assessment of Alan Greenspan, the chairman of the Federal Reserve, who said on Wednesday that the US recession was ending.

Meanwhile, the number of new jobless claims last week was smaller than expected at 378,000.

However, the upbeat assessment was tempered by worries over whether the recovery can be sustained. Businesses continued to cut back on spending on new plants and equipment, reducing investment at a rate of 13 per cent, underlining the weakness of the business sector.

Some economists fear that if consumer spending peters out before businesses can get back on their feet, there will be another fall in output – dubbed a "double dip" recession.

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