Sun, Apr 27, 2003 page11

• US economic growth report a big letdown

  • NY TIMES NEWS SERVICE
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  The US economy expanded at a tepid annual rate of 1.6 percent in the first quarter, the Commerce Department reported Friday, a barely perceptible improvement from its 1.4 percent rate of advance in the last three months of last year.

  The growth numbers were lower than what most Wall Street economists had forecast. Before the report was issued, the consensus estimate was that on an inflation-adjusted basis the nation's gross domestic product expanded at a 2.4 percent rate in the first quarter.

  Still, in some respects the numbers came as something of a relief.

  During the first quarter, the economy was racked by bad weather, soaring energy prices and uncertainties that accompanied the run-up to the onset of the war with Iraq. As recently as six weeks ago, any number of analysts were fearful those conditions might push the US back into recession.

  "The economy didn't shut down," said David Resler, chief economist at Nomura Securities International. "But it went into a state of suspended animation."

  Because of a sharp drop in imports, the nation's trade deficit narrowed. The decline in the trade gap was responsible for more than half of the quarterly gain in gross domestic product.

  Household construction was strong, aided by continued low home mortgage rates. And consumers bought lots of food, clothing and other nondurable items, offsetting a further decline in spending on big-ticket durable items like automobiles.

  Overall, consumer spending, which represents roughly two-thirds of economic activity, rose in the first quarter at an annual rate of 1.4 percent, down from an advance of 1.7 percent in the fourth quarter of last year.

  "I feel like I am digging for something good to say," David Rosenberg, chief economist at Merrill Lynch & Co, said. "Just about every line ranged from bad to awful."

  Nonresidential fixed investment fell at a 4.2 percent annual rate in the quarter, down from a gain of 2.3 percent in the fourth quarter of last year.

  And spending on equipment and software, which had been rising for a couple of quarters, fell by 4.4 percent, following a gain of 6.2 percent in the fourth quarter.

  Those numbers, coupled with recent weekly unemployment claims numbers, strongly suggest that employers are still in no mood to resume hiring workers.

  "The utter lack of confidence on the part of businesses is becoming a self-fulfilling prophesy," Resler said. "Business thinks conditions are going to remain weak, and don't hire workers. By not hiring workers, they help to keep conditions weak."

  As long as output remains at well under 3 percent, there is little prospect that payrolls will start growing again, analysts said.

  "Growth of anything less than 3 percent to 4 percent is a jobs recession," said James Glassman, senior economist at JP Morgan. "So far, this is a job-loss recovery."

  Nearly half a million jobs have been lost in the last two months. The government is scheduled to release the April employment data next Friday.

  Even though the war is over in Iraq, analysts said they do not expect the economy to experience a quick turnaround. Second-quarter growth will look much as it did in the first three months, they said.

  "Our forecast for the second quarter was for growth of 1 percent," said William Dudley, chief US economist at Goldman Sachs & Co. "It's still at 1 percent."

  One reason economists are not expecting much of a bounce this quarter is that consumer spending in the first three months was at a very low ebb. Another is that government spending at the Federal, state and local level is almost certain to slow further.

  In the first quarter, government spending rose by a mere 0.9 percent, following a 4.6 percent rise in the fourth quarter of last year. Spending by state and local governments, which are facing their worst fiscal crisis since World War II, fell by 0.1 percent. Federal spending was up by 2.6 percent.

  Dudley added that Friday's report increases "political pressure on the Fed to think hard about easing monetary policy."

  For your information

  Snail's pace

  * The US economy expanded at an annual rate of 1.6 percent in the first quarter. * Consumer spending rose in the first quarter at an annual rate of 1.4 percent, down from an advance of 1.7 percent in the fourth quarter of last year.
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