Economy grows at solid 4.1 percent pace in last quarter of 2003

WASHINGTON -- America's economic recovery ended 2003 on a good note, growing at a solid 4.1 percent annual rate, and is expected to do even better in the opening quarter of this year.

The latest reading on gross domestic product for the October-to-December quarter was the same as a previous estimate made a month ago, the Commerce Department reported Thursday. That was consistent with economists' forecasts.

GDP measures the value of all goods and services produced within the United States and is considered the most important barometer of the economy's health.

Economic growth in the current January-to-March quarter is expected to clock in at a rate of 4.5 percent, according to some analysts' forecasts. Growth in the April-to-June quarter also should be around that pace, they said.

Tax refunds and other tax incentives should motivate consumers and businesses to spend and invest more -- energizing the economy in the first half of this year, economists said.

On Wall Street, the GDP report helped propel stocks upward. The Dow Jones industrials gained 170.59 points to close at 10,218.82.

It's the second half of the year, though, that some economists are a bit concerned about.

If the lackluster job climate persists, some worry that consumers might turn cautious, thus raising the risk of an economic slowdown in the final two quarters of this year.

The economy added just 21,000 jobs in February -- all of them in government -- a Labor Department survey of payrolls showed. Job growth has been painfully slow despite better economic activity.

Since President Bush took office in January 2001, the economy has lost 2.2 million jobs.

In other economic news, new claims for unemployment benefits rose last week by a seasonally adjusted 1,000 to 339,000, the Labor Department said.

And, the National Association of Realtors reported that sales of previously owned homes grew by 2 percent in February to a seasonally adjusted annual rate of 6.12 million.

Low interest rates beckoned buyers and pushed home sales to record levels in 2003. Sales are expected to be brisk this year, too.

"With a strong underlying demand for housing from a growing population in a recovering economy, we could be flirting with another record this year," said David Lereah, the association's chief economist.

Although the fourth quarter's GDP growth rate was slower than the red-hot 8.2 percent pace of the third quarter, the economy's performance in the second half of 2003 marked the fastest back-to-back quarterly increases since the first two quarters of 1984.

Until the second half of last year, the economy was struggling mightily to get back on firm footing after being knocked asunder by the 2001 recession, terror attacks and fallout from a wave of corporate accounting scandals.

A noteworthy factor in the pickup in the second half of last year was brisk spending by businesses. Businesses finally cast off some of the caution that had previously restrained capital investment.

It was big cutbacks in capital spending that helped to thrust the economy into recession. Economists said a sustained turnaround in capital spending is a crucial ingredient for the recovery to be lasting.

Businesses boosted spending on equipment and software at a 14.9 percent rate in the fourth quarter. That was a tad slower than the 15.1 percent pace estimated a month ago and came after a 17.6 percent growth rate in the third quarter.

Still, businesses cut spending on new plants and buildings in both the third and fourth quarters. That's been an area that has remained weak.

A measure of after-tax corporate profits, adjusted for changes in inventories and capital depreciation, rose by 7.6 percent in the fourth quarter, following a 10.1 percent increase in the prior quarter. Economists hope that continued good profit growth will be an incentive for businesses to step up hiring.

Consumers, whose spending accounts for roughly two-thirds of all economic activity, also helped the economy. Consumer spending rose at a respectable 3.2 percent pace in the fourth quarter. That was better than the last estimate of a 2.7 percent pace and followed a 6.9 percent growth rate in the third quarter.