Posted on: Monday, January 26, 2004

Economic signs appear strong

By Vince Golle
Bloomberg News Service

The U.S. economy probably expanded at a 5 percent annual rate in the final three months of 2003, propelled by corporate spending and inventory rebuilding, which also may fuel growth this year, a survey of economists showed.

The fourth-quarter forecast for gross domestic product, which grew 8.2 percent in the third quarter, is based on the median estimate of 62 economists. The Commerce Department issues its report Friday on GDP, the sum of all goods and services produced in the United States.

The economy this year may be the strongest since 1984, when Ronald Reagan was president. Federal Reserve policy-makers meeting tomorrow and Wednesday are expected to signal that they're in no hurry to raise interest rates from an almost 46-year low.

"The U.S. is alive and well," said Thurman J. Rodgers, chief executive officer at Cypress Semiconductor Corp. "The U.S. economy is just now starting to take off, and it's pretty robust."

Tax cuts and low interest rates are bolstering demand. Fed policy-makers have helped bring about stronger growth by dropping their benchmark interest rate in June to 1 percent, the lowest since 1958. Central bankers, hoping to foster more hiring, are able to hold down borrowing costs because they say inflation is tame.

Productivity, at a two-decade high in the third quarter, is enabling companies to do more with fewer workers, keeping prices in check.

But the number of workers added to company payrolls has increased by just 278,000 in the five months through December. Since November 2001, 1.1 million jobs have been lost. Twenty-five months after the end of the 1990-91 recession, 1.7 million jobs had been created.

The lack of job creation is a major theme among Democratic presidential candidates looking to unseat President Bush this year. The Bush administration is counting on employment gains to follow the strong growth.

Gross domestic product will increase 4.6 percent this year, according to the average estimate of 54 economists surveyed by Blue Chip Economic Indicators earlier this month. That would mark the strongest pace since 1984.