News > Economy
U.S. growth slows
March 29, 2001: 10:48 a.m. ET

GDP 1% annual rate, down from prior estimate, lowest in more than 5 years
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NEW YORK (CNNfn) - The U.S. economy grew at a 1 percent annual rate in the fourth quarter, the government said Thursday, a bit slower than previously thought and the weakest performance in 5-1/2 years.

Gross domestic product (GDP), the broadest measure of the nation's economy, was revised down from the government's 1.1 percent estimate a month ago as companies, faced with slower growth in consumer spending, curtailed production.

graphicThe reading came in well below the third quarter's 2.2 percent rate of growth and was the slowest since a 0.8 percent growth rate in the second quarter of 1995. Wall Street economists had forecast a fourth-quarter reading of 1.1 percent.

The report shows just how quickly and deeply the U.S. economy has slowed since last spring, when it was growing at a 5.6 percent annual rate. At that time the Federal Reserve was raising interest rates in a bid to rein growth back to a more sustainable pace that wouldn't spark inflation.

Slowdown has forced Fed's hand

Now the Fed, the nation's central bank, is cutting rates aggressively in a bid to keep the United States from slipping into a recession.

Wall Street showed little reaction to the report. Stocks traded mixed after falling earlier in the session as investors' ongoing worries about corporate profits derailed the rally that started late last week.

Analysts said the GDP report showed manufacturers were cutting inventories due to slower demand, which could set the stage for a rebound later this year.

"That's actually good news," Charles Lieberman, chief economist at Advisors Financial, told CNNfn's Before Hours program after the report. "It means we're carrying less inventory and the production process is adjusting." (372K WAV) (372K AIFF)

In testimony before the House Budget Committee earlier this month, Fed Chairman Alan Greenspan said he believes the unprecedented economic growth and productivity of the last 10 years was being "tested" as consumer demand increased while inventories continued to rise. He said Tuesday in a speech that more accurate measures of U.S. productivity were needed in order to provide more solid guidance on which way the economy is headed.

graphicThe revised GDP number comes two days after the Conference Board reported consumer confidence increased for the first time in six months in March, indicating Americans are more optimistic about the economy than analysts have thought. Confidence is watched closely by some analysts and policy makers since consumer spending fuels two-thirds of the U.S. economy, the largest in the world.

The Fed has cut rates three times this year, including a rare cut between its regular meetings of policy makers, but the last half percentage point reduction disappointed some investors who wanted a bigger cut.

Investors have been selling stocks because the slowing economy has hurt corporate profits and forced thousands of layoffs, including big cuts at Delphi, the nation's biggest auto parts maker, announced Thursday morning.

In its report, the department said after-tax profits for U.S. companies fell for the first time in two years, down 4.3 percent after growing 0.6 percent in the third quarter. It was the first drop since the fourth quarter of 1998, when profits decreased 1.6 percent.

Meanwhile, a key measure of inflation rose an unrevised 1.9 percent in the quarter, the department said in its report. And new claims for jobless benefits fell 20,000 to 362,000 last week but remained sharply above year-earlier levels, the Labor Department said in a separate report.

-- from staff and wire reports   graphic