Herald News Services
WASHINGTON — The U.S. economy started growing again last quarter, an important sign that the nation is pulling out of its recession.
Powered by soaring auto sales and a sharp increase in government spending, the economy rose at a 0.2 percent annual rate during the last three months of 2001, the Commerce Department reported Wednesday.
The unexpectedly strong number, a first estimate that will be revised in coming months, suggests that the U.S. recession that began last spring already may have ended. If so, it will have been the mildest on record.
"The worst is over. We’re on the road to recovery," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.
With prospects for an economic rebound improving steadily, Federal Reserve officials meeting Wednesday decided not to further cut overnight interest rates, which already are at historical lows.
It was the first meeting since the beginning of last year at which the target was not reduced to help boost the economy. The Fed has responded aggressively to the slowdown by lowering its target rate 11 times, for a cumulative cut of 4.75 percentage points, to 1.75 percent.
"Signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent," the Fed said in a brief statement. "With the forces restraining the economy starting to diminish, and with the long-term prospects for productivity growth remaining favorable and monetary policy accommodative, the outlook for economic recovery has become more promising."
However, the Fed said the strength of business and household spending in coming months "is still uncertain," and therefore it regards the risks still facing the economy as "weighted mainly toward conditions that may generate economic weakness in the foreseeable future."
Inaction by the Fed would have been expected to send the stock market into a tailspin. But Wall Street rallied on the Fed’s more positive outlook. The Dow Jones industrial average closed up 144.62, or 1.5 percent, at 9,762.86.
The news wasn’t good for President Bush, who used his State of the Union address to urge passage of an economic stimulus program.
He said after release of the growth report that his program was still needed as an insurance policy. "For the sake of America’s workers, I call on Congress to pass an economic security package," the president said.
However, prospects for the program remain clouded. Federal Reserve Chairman Alan Greenspan expressed doubt last week that a stimulus was needed, and Senate Democrats believe the GOP package tilts too heavily toward tax breaks for the wealthy and corporations.
Continuing his comments on the economic growth report, John Hancock’s Cheney said he was heartened to see that business inventories of various goods had fallen significantly.
"The shelves have to be restocked, and even a modest increase in orders will push the economy into positive territory moving ahead," he said. If things get back to even close to normal, we could see a big pop in first-quarter GDP growth."
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