Sluggish US economy slows more than expected in the fourth quarter

JEANNINE AVERSA

Associated Press

WASHINGTON — The United States economy grew at a sluggish 2.2 per cent pace in the final quarter of last year, much slower than initially thought as businesses tightened their belts amid fallout from the troubled housing and automotive industries.

The fresh reading on gross domestic product, released Wednesday by the Commerce Department, showed the economy in a considerably weaker state than the government first estimated, when it said the expansion in the last three months of 2006 was at a 3.5 per cent pace.

The new GDP figure for the October-to-December quarter was a tad slower than the 2.3 per cent growth rate economists were forecasting and clearly less sunny than that original estimate. The GDP, which measures the value of all goods and services produced within the United States, is the best overall barometer of economic health.

Although the fourth quarter's showing marked a slight improvement from the third quarter's mediocre 2 per cent growth rate, it didn't alter the overall picture that economic activity in both quarters was restrained by the housing slump and the ailing automotive sector.
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The Globe and Mail

Investment in home building in the fourth quarter was slashed at a 19.1 per cent pace, the steepest decline in 15 years.

The downgrading of the fourth-quarter GDP estimate meant that the economy for all of 2006 ended up growing by 3.3 per cent, down slightly from 3.4 per cent first estimated. Even so, the new figure still marked the best annual performance in two years.

Business retrenchment was a key factor behind the lower GDP estimate for the fourth quarter. Businesses, worried that extra supplies of goods might get out of whack with customer demand, ended up investing much less than previously thought in their inventories. That shaved 1.35 percentage points off fourth-quarter GDP, the most in 1 1/2 years.

Companies also ended up cutting back on other spending and investment in the fourth quarter, including equipment and software and new plants and other commercial buildings.