The economy eked out a meager growth rate of 0.7 percent in the fourth quarter of last year, the Commerce Department reported Thursday, as the first positive gain for business investment in two years was not enough to compensate for consumers' dwindling appetites for new cars and trucks.
Emerging from recession last year, the economy posted decent overall growth of 2.8 percent from the end of 2001 through the end of 2002, but it was a year of jagged quarterly performances, capped by a sharp slowdown from the 4 percent rate during the third quarter.
"In the areas where you had a recession, you can't get a recovery given the levels of overcapacity and risk aversion," said Paul A. McCulley, a managing director at the Pacific Investment Management Co known for his economic forecasting.
Most economists had predicted a weak figure for the fourth quarter, and none interviewed on Thursday said they planned to change their forecasts. Though they expect growth to improve slightly this year, it might not be enough to create jobs until the spring or summer.
Many companies hesitate even to bet on a midyear recovery, said Carl T. Cadden, president and chief operating officer of Kelly Services, a leading provider of temporary workers. His clients "talk about things turning around in the third quarter," he said, "and then they realize that's the same speech they gave last year."
The confirmation of dreary suspicions about the fourth quarter could give both political parties ammunition in the coming debate on another fiscal stimulus package. Yet consumers have been less than impressed with the president's proposal, said Richard T. Curtin, director of consumer surveys at the Institute for Social Research at the University of Michigan.
"They don't think it will help improve the job outlook."
In the fourth quarter, the resilience of the American consumer finally suffered a small lapse. The increase in consumer spending, in the midst of heightened uncertainty about a war in Iraq and stubbornly high unemployment, was just 1 percent, adjusted for inflation and seasonal changes, the smallest gain since 1993.
A drop of US$25 billion in auto sales accounted for virtually all of the lull. William T. Wilson, a senior economist at Ernst & Young, said he expected the slackness in auto sales to continue. Special incentives had managed to keep sales above their trend for four years, he said, but consumers' enthusiasm was bound to wane.
"You have been borrowing from the future for a year or two," Wilson said. "Even with aggressive discounting, you're still looking at another down year for auto sales."
McCulley added that consumers had come to expect no-interest financing for cars and trucks regardless of changes in the economy.
"The consumer has been trained to pull back until zero is restored," he said. "There's no pricing power in that sector."
The other sector that bolstered the economy last year -- housing -- stayed strong through the fourth quarter. Investments in residential housing swelled by 6.8 percent. On Tuesday, the Commerce Department reported that sales of new homes had risen by 37,000 in December, capping an all-time record year of 976,000 sold.
In addition to spending on new homes, consumers kept buying more goods from abroad. Oil prices also rose in the fourth quarter, and exports from American manufacturers dropped by 1.7 percent. The nation's trade gap ballooned by US$18.9 billion, further dragging down the economy's growth rate.
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