WASHINGTON – The U.S. economy steamed out of 2001 with more momentum than previously thought, a government report released on Thursday said, as it shook off the lingering effects of the Sept. 11 attacks even as American corporate profits remained under pressure.
The Commerce Department said the economy grew at a revised 1.7 percent annual rate in the fourth quarter of 2001, faster than the 1.4 percent pace previously reported and a turnabout from the 1.3 percent rate of decline seen in the third quarter. It was also the strongest quarterly economic clip since the fourth quarter of 2000.
For 2001 as a whole, the economy grew at a mild 1.2 percent annual rate, the slowest annual pace since the recession in 1991, when the economy shrank by 0.5 percent.
The stronger-than-expected report supports the view of many analysts that the economy has likely turned the corner on one of the most shallow recessions in U.S. history and is now in a recovery phase. Forecasts for first-quarter growth hover in the 4 percent to 5 percent range, as consumers continue to spend and companies rebuild depleted inventories.
Analysts polled by Reuters had expected GDP growth to come in at 1.4 percent annual rate previously estimated.
"In these fourth-quarter numbers, we are seeing the makings of a turnaround in sentiment," said James Glassman, senior economist with JP Morgan Chase Securities in New York.
"It's all very positive, and this is why all of us are turning much more positive about growth this year," he said.
Still, firms found their bottom lines under pressure in the fourth quarter. Corporate after-tax profits fell by $50.4 billion in the quarter after a $34.7 billion drop in the third quarter. It was the biggest quarterly decline since the first quarter of 1998.
For 2001, after-tax profits dipped by 15.9 percent, the first decline since 1982's 17.1 percent drop, Commerce said.
For the fourth quarter, Commerce said the upward revision in growth was due to new data on trade in services, with exports revised upward while imports were revised downward.
Most of the other data in the report were close to previous estimates. Consumer spending, which makes up two-thirds of economic activity, rose at a 6.1 percent annual rate, boosted by a 39.4 percent rate of increase in sales of durable goods, items such as cars meant to last three or more years.
Business investment declined at a 13.8 percent annual pace, its fourth straight quarterly fall. Economists are closely watching business spending for signs of revival, as the sector led the overall economy into recession last year.
But with profits down, companies may be reluctant to invest in new plants and equipment until they are certain that the recovery will be sustained.
Companies drew down their inventories sharply in the quarter, slicing more than two percentage points off of the growth estimate. That was almost offset by government spending, which was revised upward slightly, adding about 1.75-percentage points to growth.
Elsewhere in the report, a measure of price pressures continued to show benign inflation. The price index for personal consumption spending in the fourth quarter rose at a 0.8 percent annual rate, up slightly from the 0.7 percent pace previously reported. For the entire year, the measure was up at a 1.9 percent pace, slowing from 2000's 2.7 percent clip.
Commerce also aid it adjusted the corporate profits figures in the report to account for the recently-enacted economic stimulus package. The legislation included provisions for tax write-offs of 30 percent on some investments and extended the period for which companies can use previous years' losses to reduce their tax bills.