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 user 2006-01-27 at 4:26:00 pm Views: 72
  • #14234

    Economy Grows at Slowest Pace in 3 Years

    WASHINGTON  – The economy slowed to a near crawl in the
    final quarter of 2005, a listless showing that was the worst in
    three years. However, growth was respectable for the year and is
    expected to perk up again soon.

    Gross domestic product clocked in at an annual rate of just 1.1
    percent from October through December. That marked a loss of speed
    compared with the third’s quarter’s brisk 4.1 percent pace, the
    Commerce Department reported Friday.

    Belt tightening by consumers, businesses and the government
    figured into the fourth-quarter’s slowdown.

    GDP, which measures the value of all goods and services produced
    within the United States, is the best barometer of the economy’s

    Even with the feeble finish, the economy logged growth of 3.5
    percent for all of 2005 – a year when the country coped with
    fallout from lofty energy prices and the devastating Gulf Coast
    hurricanes. Analysts called the GDP figure for all of 2005 solid,
    although it was down from 2004′s 4.2 percent gain.

    “Considering the impact of the hurricanes and record heating
    bills last year, the economy continues to show remarkable
    resilience,” said Bill Cheney, chief economist at John Hancock
    Financial Services.

    Looking at the fourth quarter, economists felt the slowdown was
    more of a temporary setback rather than a harbinger of a sustained
    period of economic troubles ahead.

    “The economy hit a pothole in the fourth quarter. I’m not at
    all worried about the health of the economy,” said Mark Zandi,
    chief economist at Moody’s Economy.com.

    Zandi believes the economy in the current January-to-March
    quarter is already doing better and predicts growth will come in
    around a 4 percent pace. For all of 2006, analysts project economic
    growth to top 3 percent.

    President Bush, in his State of the Union address Tuesday
    evening, plans to spotlight some pocketbook issues, including high
    energy prices, tax cuts and expensive health care. Public concern
    about the economy is still relatively high, polls indicate.

    The GDP report gave both Republicans and Democrats something to
    seize upon.

    “We know the economy is not in real good shape. We have the
    price of oil, which is volatile, going up and down, up and down. We
    know that the deficit is staggering,” said Senate Minority Leader
    Harry Reid, D-Nev.

    Treasury Secretary John Snow countered that the “economic
    fundamentals point to continued strong economic performance in the
    United States in 2006.” He called the fourth-quarter’s weak
    showing “somewhat anomalous” and said he wouldn’t read too much
    into it.

    Consumers turned cautious in the final quarter as high energy
    prices and rising borrowing costs took a toll on their budgets.
    Their spending grew at a 1.1 percent pace, the slowest since the
    second quarter of 2001 when the economy was suffering through a

    Most of the weakness came as people sharply cut back on
    purchases of big-ticket “durable” goods, such as cars. This
    spending dropped by a hefty 17.5 percent rate, the sharpest decline
    since the first quarter of 1987.

    Businesses also were more restrained, boosting spending on
    equipment and software at a 3.5 percent rate in the fourth quarter,
    the smallest since the first quarter of 2003.

    Another factor restraining overall GDP in the fourth quarter:
    federal government spending, which fell at a 7 percent rate, the
    biggest drop since the third quarter of 2000. Analysts, skeptical
    about this decline, believed it would be reversed, especially given
    spending related planned for the war in Iraq and hurricane cleanup
    and rebuilding.

    While growth slowed in the fourth quarter, inflation picked up,
    according to one price measure in the report that is closely
    watched by the Federal Reserve.

    “Core” prices – excluding food and energy costs – rose at a
    2.2 percent rate in the fourth quarter, up from a 1.4 percent
    growth rate in the third quarter. This suggests inflation is
    filtering into a variety of other prices.

    To combat inflation, the Fed is expected to boost interest rates
    next Tuesday one-quarter percentage point to 4.50 percent.

    It will be last meeting for Alan GREENSPAN Who will retire that
    day after more than 18 years at the helm of the central bank. Ben
    Bernanke, who is slated to succeed Greenspan, would lead his first
    meeting to consider interest rate policy on March 28. The Senate is
    expected to vote on Bernanke’s nomination Tuesday.

    “The new Fed chair will be tested right off the bat. The
    economy is slowing, though clearly not as rapidly as the headline
    number would have you think. …At the same time, inflation is
    slowly accelerating,” said Joel Naroff, president of Naroff
    Economic Advisors.

    In a second report, the Commerce Department said new home sales
    in 2005 climbed to an all-time high, marking the fifth year in a
    row of record sales. Sales of new single-family homes totaled 1.28
    million units last year, a 6.6 percent increase over 2004′s sales.

    The roaring housing market has helped to bolster the economy,
    but analysts expect the sector to lose steam this year. They’re
    hoping the slowdown will be moderate. A big drop in home sales and
    house prices could pose dangers for the overall economy