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Economy grew a modest 0.7% in fourth quarter

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This morning's economic data shows the U.S. economy grew at a modest 0.7% annual rate in the recently completed fourth quarter, which was slightly below economist's forecast for a 0.9% annual growth rate.

While this morning's report from the Commerce Department is preliminary and can be revised, the Q4 growth combined with the previous three quarters of GDP data had the economy growing a total of 2.4% in 2002 after growing just 0.3% in 2001.

For 2002, the nation's gross domestic product totaled $10.44 trillion in current dollars.

Final sales of U.S.-produced goods rose at a 1.3% pace in the fourth quarter.

Much of the growth in 2002 was due to defense spending, inventory restocking and unsustainable growth in homebuilding and auto sales, however. What growth there was is a testament to the power of monetary and fiscal policy, which drove interest rates to 40-year lows and flooded the economy with tax cuts and military spending.

Despite the efforts of the Fed and the Congress, however, final sales of U.S.-produced goods and services rose only 1.8% for the year, a particularly weak performance coming out of a recession.

Consumer spending rose 3.1% in 2002, including a 7.4% increase in purchases of durable goods.

Investments in homes rose an impressive 3.8% for the year, considering the high level they started with.

Government spending rose 4.4% for the year, the largest gain since 1986. Defense spending rose 9.3%, the biggest military buildup since 1967.

Consumers and government did their part in 2002, but businesses faltered. The business sector was burdened by too much capacity, too much debt and too much uncertainty about the accounting books and the order books.

As a result, business investment fell 5.8% in 2002, the biggest decline in 27 years. Investments in equipment and software dropped 1.8% while investments in structures sank a record 16.4% in a data series that goes back to 1929.

The nation's real gross domestic product had grown at a 4% rate in the third quarter, largely because of historically high auto sales. When sales growth sagged in the fourth quarter, so did GDP.

For the fourth quarter, the 4.6% gain in government spending provided the biggest boost to growth, contributing 0.8%age points. Defense spending, which rose 11.2%, added about 0.5 percentage points to growth by itself.

Consumer spending grew 1%, contributing 0.7 percentage points to growth. Spending on durable goods dropped 7.3% after a 22.8% surge in the third quarter. Business investments rose 1.5% in the fourth quarter, the first increase in nine quarters. Investments in new equipment and software rose 5% while investments in structures fell 9.3%. Inflation was subdued for the quarter and for the year.

The GDP price deflator rose 1.1% in 2002, the lowest since the 1% rise in 1950. The deflator rose 1.8% for the quarter.

Other economic data out this morning has weekly jobless claims rising by 14,000 to 397,000, which was above consensus estimates for a 385,000 increase in jobless claims. This had the four-week moving average of jobless claims falling by 3,000 in the latest week to 384,000, the lowest since the week ended November 30. The four-week average remained below the key 400,000 level for the third week in a row. The 400,000 level is thought to be somewhat of a waterline by economists that generally believe a level above 400,000 is sign of a worsening labor market, while levels below are signals to an improving labor market.

Stock futures did give back some of their gains immediately after the release of this morning's economic data, but have since resumed their modestly bullish tone that was being seen just prior to their 08:30 AM EST release. For the most part, this morning's economic data was inline with expectations, and doesn't look to have offered any big surprises to the markets.

S&P futures (sp03h) currently trade higher by 4.8 points to 865.50. NASDAQ futures (nd03h) are gaining 10.5 points to 1,024, while Dow futures (dj03h) are higher by 36 points at 8,110.

Fair value for the S&P 500 today is $0.10. That price will not change during the session. HL Camp & Company has their computers set for program buying at $0.16 and set for program selling at $-2.72.

Jeff Bailey

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