GDP shows economy was on rebound in late 2001

Associated Press

WASHINGTON — The economy, knocked down by recession and terror attacks, snapped back at a stronger pace than previously believed in the final three months of 2001.

Gross domestic product — the broadest measure of the economy’s health — grew at an annual rate of 1.7 percent in the fourth quarter of last year, its best performance in a year, the Commerce Department reported Thursday.

The government had initially estimated that the economy grew at a tiny 0.2 percent rate in the fourth quarter. A month ago, that was revised to a 1.4 percent rate.

Thursday’s upward revision to the GDP, based on more complete data, largely reflected an improved trade picture, which was less of a drag on growth in the fourth quarter.

The latest GDP report reinforces the view that the recession, which began last March, has ended and probably will turn out to be the country’s mildest downturn ever, economists said.

"It’s starting to look like a pretty picture of recovery," said Stuart Hoffman, chief economist at PNC Financial Services Group.

The Dow Jones industrial average finished the day down 22.97 at 10,403.94, cutting short a two-session winning streak as investors braced for earnings reports due out starting next week.

While the 1.7 percent GDP growth rate is still considered below par, it nonetheless marks a remarkable turnaround for the economy, which shrank at a 1.3 percent rate in the third quarter following the jolt of the Sept. 11 terrorist attacks.

Many economists estimate the GDP, which measures the total output of goods and services produced within the United States, continues to improve in the current quarter.

Some predict economic growth in the January-March quarter could be at a sizzling rate of 5 percent to 6 percent. Others forecast a rate in the 4 percent range. Growth should be helped along as the Federal Reserve’s 11 interest rate cuts last year make their way through the economy.

Earlier this month, Fed Chairman Alan Greenspan offered his most optimistic assessment of the U.S. economy in more than a year, telling Congress recovery from the recession was under way.

Manufacturers, which had throttled back production during the slump and laid off hundreds of thousands of workers, worked off big stocks of unsold goods and were beginning to add to production.

Against that backdrop, inventory reduction was a little less of a drag on fourth quarter GDP than previously thought. Economists believe that first-quarter GDP will get a sizable boost as companies replenish stocks.

The trade deficit, meanwhile, shaved 0.14 percentage point from fourth-quarter GDP, compared with the 0.35 percentage point reduction previously estimated. That was the biggest factor in the GDP upward revision.

Consumer spending, which accounts for two-thirds of all economic activity in the United States, grew at a 6.1 percent rate, a big pickup from the weak 1 percent rate in the third quarter.

Businesses in the fourth quarter continued to cut investment in new plants and equipment, a key source of the overall economy’s weakness. Economists said companies won’t significantly rev up capital investment, production and hiring until there is improvement in corporate profits.