WASHINGTON – The economy hit a soft patch in the final quarter of 2005, growing at an annual rate of just 1.7 percent. But fresher readings suggest America's business health has improved and is generally sound.
While the latest figure for gross domestic product in the October-to-December period was indeed anemic and marked the worst performance in three years, the new reading actually turned out to be slightly better than the 1.6 percent growth rate estimated a month ago, according to the Commerce Department's report released Thursday.
The 1.7 percent pace matched analysts' expectations. The slight upgrade for the quarter reflected stronger inventory building by businesses than previously thought.
The Federal Reserve and other economists say the economy bounced back smartly in the current January-to-March quarter. Private analysts predict growth during this period will clock in at a brisk pace of 4.5 percent or higher. Then economic activity will moderate to around a 3.4 pace in the April-to-June quarter.
Gross domestic product measures the value of all goods and services produced within the United States and is considered the best gauge of the economy's performance.
Federal Reserve Chairman Ben Bernanke and his colleagues said Tuesday that the economy has snapped out of its end-of-year doldrums and has "rebounded strongly" in the January-to-March quarter. "But (it) appears likely to moderate to a more sustainable pace" going forward, the board said.
Fed policymakers chalked up the fourth-quarter's mediocre performance to mostly "temporary or special factors" — an assessment that was shared by private economists who likened the final quarter of 2005 to a temporary breather rather than a sign of prolonged economic troubles ahead.
The 1.7 percent growth rate in the fourth quarter marked a big loss of momentum from the third quarter's zippy 4.1 percent pace.
The fourth quarter's slowdown was blamed on lingering fallout from the Gulf Coast hurricanes and elevated energy prices, which especially caused consumers to tighten their belts.
Consumer spending in the final quarter of 2005 grew at a pace of just 0.9 percent, the weakest since the first quarter of 1995. A cut in spending on big-ticket goods, such as cars, was the main culprit behind the lethargic showing in overall consumer spending.
Cuts in spending by government also contributed to the fourth-quarter's weak performance.