WASHINGTON, Feb 28: The US economy expanded by a meagre 1.6 per cent in the last three months of 2005, according to the latest government estimate on Tuesday, but analysts expect growth to rebound quickly.
The Commerce Department raised its estimate for fourth-quarter gross domestic product growth from its first figure of 1.1 per cent given last month. But it was still well down on the 4.1 per cent pace seen over July-September.
GDP in the fourth quarter showed the weakest growth pace in three years after 10 consecutive quarters of expansion above 3.0 per cent. But Treasury Secretary John Snow said the downturn was a blip.
“The American economy continues to be on a very solid path of economic growth and job creation, with low unemployment claims, strong retail sales, orders for core capital goods continuing to grow at a robust rate and Tuesday’s upward revision of fourth-quarter 2005 GDP growth,” he said in a statement.
“With so much good economic news so far this quarter, it is no surprise that private forecasters expect solid growth for the first quarter of this year,” he said.
On a year-on-year basis, the economy grew 3.2 per cent in the fourth quarter, the slowest rate in nine quarters. The economy grew 3.5 per cent in all of 2005 compared with 2004.
Other economic data out on Tuesday gave the markets food for thought with readings on the housing market, consumer confidence and manufacturing all proving weak.
But economists agreed that the world’s biggest economy would recover from the poor fourth-quarter performance, when growth suffered from a sharp fall in auto sales and the devastating impact of summer hurricanes.
“The fourth-quarter figures were clearly depressed by a swing to the downside in both auto purchases and federal defence spending,” Wachovia financial economist Gina Martin said.
“The first-quarter figures are likely to be equally skewed to the upside by the uncharacteristically warm weather in January,” she said.
“Therefore, the truth lies somewhere in between. After the dust clears, we expect growth to return to an average rate of around 3.0 per cent for the remainder of the year.”
Giving its second of a total of three GDP readings for each quarter, the Commerce Department said inventory rebuilding by companies accounted for all of the growth in October-December.
The fall from the previous quarter reflected lower consumer spending, higher imports, a downturn in federal government spending, and decelerations in equipment, software and in residential fixed investment, it said.
The report showed that core inflation — which excludes food and energy costs — increased at a 2.1 per cent annual rate in the fourth quarter, a touch high for the Federal Reserve’s liking.
—AFP
