Economic growth slowed a bit in the final stretch of 2004, expanding at a still respectable 3.1 percent pace. For all of last year, though, the economy clocked in at its fastest clip since 1999, a compelling sign that the recovery is more deeply rooted.
The Commerce Department’s latest gross domestic product figures, released Friday, showed the GDP increasing by 4.4 percent in 2004. That was up from 3 percent in 2003 and marked the best showing since 1999, when the economy grew by 4.5 percent.
Brisk spending by consumers and businesses propelled economic growth last year.
“When you look at all of 2004, it’s hard to come away with a feeling of disappointment. The performance of the economy, as a whole, is impressive,” said Anthony Chan, senior economist at JPMorgan Fleming Asset Management.
GDP measures the value of all goods and services produced within the United States and is considered the best barometer of the country’s economic health.
In the final October-to-December quarter of 2004, the economy grew at a 3.1 percent annual rate, down from a 4 percent pace posted in the third quarter. The fourth quarter’s performance was somewhat weaker than the 3.5 percent growth rate some economists were predicting.
The deceleration seen in the fourth quarter from the previous quarter mostly reflected a drag on growth from the nation’s swollen trade deficit.
The latest snapshot of the economy comes as President Bush tries to build political and public support for two key pieces of his second-term economic agenda: overhauling Social Security and the nation’s tax code— costly propositions made even more daunting, analysts say, by the government’s already bloated budget deficits.
While the economy has been moving forward, the recovery in the nation’s jobs market since the 2001 recession has been more uneven as companies still retain some caution. Still, for all of 2004, payrolls expanded by 2.2 million, the first annual increase in three years.
In other economic news, the Labor Department reported that workers’ wages and benefits grew 0.7 percent in the fourth quarter, down from a 0.9 percent increase in the prior quarter, as employers kept a close eye on costs.
With the economy on firm ground, the Federal Reserve is expected to boost a key interest rate next week by one-quarter percentage point to 2.50 percent. That would mark the sixth increase since the Fed embarked on a rate-raising campaign in June 2004. The rate increases are aimed in part at keeping inflation at bay.
An inflation gauge tied to the GDP report showed that prices in the fourth quarter of 2004 rose at a 2.5 percent rate, lifted in part by surging energy prices. That compared with a 1.3 percent growth rate in prices in the third quarter.
Those higher prices, however, didn’t crimp consumer spending. Consumers boosted spending in the fourth quarter at a brisk 4.6 percent annual rate, following a 5.1 percent growth rate in the third quarter. For all of 2004, consumer spending rose by 3.8 percent, the strongest showing since 2000.
Consumer spending accounts for roughly two-thirds of all economic activity in the United States. Thus, the behavior of consumers plays a major role in shaping the economy.
Business spending on equipment and software also contributed to economic growth. In the final quarter of last year, such spending rose at a sizable 14.9 percent annual rate, on top of a 17.5 percent growth rate registered in the third quarter. For all of last year, business spending on equipment and software grew by 13.4 percent, the largest increase since 1997.
The biggest drag on economic growth in the fourth quarter was the yawning trade deficit, which shaved 1.73 percentage point off of GDP. The burgeoning trade deficit has been a political headache for Bush. The president says the best way to get the trade deficits under control is to open more markets to U.S. companies But critics, including Democrats, say the president’s free-trade policies have contributed to losses of U.S. manufacturing jobs.