Economy nearly stalled in 4th quarter
WASHINGTON (AP) - January 30, 2008 The Commerce Department's report on the gross domestic product,
released Wednesday, showed an economy that had deteriorated
considerably during the October-to-December quarter as worsening
problems in the housing market and harder-to-get credit made
individuals and businesses more cautious in their spending. Fears
of a recession have grown, even as inflation remained elevated.
For all of 2007, the economy grew by just 2.2 percent, the
weakest performance in five years, when the country was struggling
to recover from the 2001 recession. The housing collapse dealt the
economy its biggest blow last year. Builders slashed spending on
housing projects by 16.9 percent on an annualized basis, the most
in 25 years.
"The economy has been subject to something of the perfect storm
here. It has been hit by the housing slump the credit squeeze, the
subprime slime and stock price declines on Wall Street," said
economist Ken Mayland, president of ClearView Economics. "The
economy is weathering some pretty stormy seas but it is weak."
On Wall Street, stocks slid. The Dow Jones industrials were down
around 25 points in morning trading.
The fourth-quarter's performance was much weaker - half the pace
- than economists were expecting. They were forecasting growth to
clock in a 1.2 percent pace.
The 0.6 percent annualized increase in gross domestic product
(GDP) marked a big loss of momentum from the third quarter's brisk,
4.9 percent showing. The fourth-quarter pace was the slowest since
the first quarter of last year.
The GDP figures come as worries mount that the country is on the
verge of a recession or perhaps is already sliding into one.
To help bolster the economy, the Federal Reserve was poised
Wednesday to again cut interest rates. An afternoon announcement
was expected.
The fragile economic situation has spurred rare cooperation
among Democrats, Republicans and the White House to quickly enact
legislation to stimulate the economy.
GDP measures the value of all goods and services produced within
the United States and is the best barometer of the country's
economic health.
Consumers whose spending is critical to the economy's well-being
tightened their belts.
In the fourth quarter, consumer spending slowed to a pace of 2
percent, down from a 2.8 percent growth rate in the prior quarter.
For all of last year, consumers boosted spending by 2.9 percent,
the smallest increase since 2003.
Businesses also watched their spending more closely during the
final quarter of last year. Fearing a lessening appetite from their
customers, they cut inventories of goods. That shaved 1.25
percentage points from fourth-quarter GDP, the most in a year.
Spending by businesses on equipment and software slowed to a
pace of 3.8 percent in the fourth quarter. For the year, such
spending was up just 1.4 percent, the worst showing since 2002.
Sales of U.S. goods and services abroad also slowed sharply in
the fourth quarter. Exports grew at a 3.9 percent pace, compared
with a sizzling 19.1 percent growth rate in the third quarter. That
strong export growth was a key reason why the economy performed so
well as a whole in the prior quarter. For all of 2007, exports grew
by 7.9 percent, the slowest in two years.
Meanwhile, inflation picked up sharply during the final quarter.
However, for all of 2007, it moderated slightly.
A gauge of inflation linked to the GDP report showed that
"core" prices - excluding food and energy - grew at a rate of 2.7
percent in the fourth quarter. That was up from a 2 percent rate in
the prior quarter and was the biggest quarterly increase since the
spring of 2006.
For all of last year, core prices went up 2.1 percent, down from
2.2 percent in 2006. The inflation figures are above the Fed's
comfort zone - the upper bound of which is a 2 percent inflation
rate.
High energy prices are a double-edged sword. They can put a
damper on growth and also stoke inflation, which would be a
dangerous combination for the economy.
The inflation figures could complicate the Fed's job of trying
to energize overall economic growth while also keeping inflation
under control.
Some analysts think the economy is on pace to recede from
January through March. Under one rough rule, the economy would have
to contract for six months in a row for the country is considered
to be in a recession. The odds of a recession have risen sharply
over the last year, and analysts increasingly believe the U.S. will
be in one during the first half of this year.
The big worry is that consumers will clamp down on spending and
businesses will put a lid on capital spending and hiring, throwing
the economy into a tailspin.
The collapse of the housing market, soured mortgage investments
and much harder-to-get credit are weighing on people and businesses
alike. Foreclosures have hit record highs and banks have wracked up
multibillion losses. The fallout has shaken Wall Street, catapulted
the economy as Topic A among voters and galvanized political
figures, including those vying to be the next president.
(Copyright 2008 by The Associated Press. All Rights Reserved.)