US growth slows down sharply in final quarter

The US economy slowed sharply in the final quarter last year, heightening fears that the recovery from the 2001 recession may already be petering out.

Preliminary figures from the Commerce Department showed that gross domestic product grew at an annual rate of only 0.7 per cent in the October to December period, compared with 4 per cent in the preceding quarter.

For the entire year, the economy grew 2.4 per cent, roughly in line with most international forecasts, and substantially better than the 0.3 per cent expansion in 2001.

Yesterday's data sent Wall Street stumbling lower, with the blue-chip Dow Jones index ending down 166 points at 7945.1.

However, analysts did note several encouraging signs in the GDP report, including the first quarterly rise in business spending in nine quarters. Spending rose at a 1.5 per cent rate in the fourth quarter, led by more purchases of computers and software, after declining at a 0.8 per cent pace in the third quarter.

The weakening was caused by lacklustre consumer spending, including the holiday period, and by companies running down inventories in the expectation of feeble demand. The result was a jump in unemployment to more than 6 per cent, the highest level in more than eight years.

The jobless picture will probably continue to worsen in the immediate future, assuming growth remains below the 3 per cent needed to keep unemployment from rising. Fears of war with Iraq are also casting a pall over the business environment.

Economists, however, generally do not expect a full blown "double dip" recession. Once the war uncertainty is lifted, growth is likely to pick up somewhat.

Current forecasts predict the American economy will expand by 2 per cent or more for 2003 as a whole.