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Tue, Jul 11, 2000
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Economy Grows at 6.9 Percent Rate in Fourth Quarter
By Jeannine Aversa   Associated Press
WASHINGTON — The U.S. economy, propelled by hardy consumer spending, surged ahead at a breakneck 6.9 percent annual rate during the final three months of 1999 — the strongest pace in more than three years.

The Commerce Department reported Friday that the big advance in the gross domestic product — the total output of goods and services — was even stronger than the sizzling 5.8 percent fourth-quarter rate the government previously estimated one month ago.

Friday's revised estimate matched a 6.9 percent growth spurt posted in the second quarter of 1996 and has not been exceeded since a 7.2 percent rate of increase in the fourth quarter of 1987.

The revised fourth-quarter estimate shows the economy growing at a more robust pace than many analysts were predicting. They estimated that the economy could grow at rates anywhere from 6.3 percent to 6.8 percent.

With investors expecting supercharged growth, the bond market showed little reaction after the report's release. Bond prices were largely unchanged as the yields on 30-year Treasurys nudged up to 6.14 percent in early trading from 6.13 percent late Thursday.

The economy's fourth quarter growth sprinted past the 5.7 percent rate of increase recorded in the third quarter of 1999.

A number of factors contributed to the fourth-quarter's performance: robust consumer and government spending and a strong buildup in inventories held by businesses added to growth, while the swelling U.S. trade deficit continued to subtract from it.

The Federal Reserve has bumped up interest rates four times since June to slow the red-hot economy and keep inflation under control.

Many economists widely expect the central bank will boost rates again on March 21 given that the economy continues to grow faster than the Fed's preferred speed limit in the 3 percent range. That's believed to be the growth rate that can be sustained without sparking inflation.

An inflation gauge tied to GDP rose at an annual rate of 2.5 percent in the fourth quarter, the same as previously estimated and slightly higher than the 1.8 percent rate in the third quarter.

Fed Chairman Alan Greenspan told Congress last week that the central bank favors this gauge, called the personal consumption expenditure chain-type price index.

The booming U.S. economy has been powered by consumer spending, which accounts for two-thirds of all economic activity.

The government said Friday that consumer spending rose at an annual rate of 5.9 percent in the fourth quarter, stronger than previously thought and more brisk than the 4.9 percent rate posted in the previous quarter.

Plentiful jobs, stock market gains and rising incomes have made Americans feel wealthy and put them in the mood to spend.

All that spending pulled the nation's savings rate — savings as a percentage of disposable income — to a record quarterly low of 1.8 percent in the fourth quarter, slightly lower than previously estimated and a worse showing on savings than the 2.1 percent rate in the third quarter.

Businesses, confident that consumers will keep spending, increased their stockpiles to $68.7 billion, higher than originally estimated and up from $38 billion in the third quarter.

And, business investment — spending on new equipment and plants — rose at an annual rate of 2.5 percent, the same as previously thought, but down from the 10.9 percent rate in the third quarter.

Government spending grew by a brisk 9.2 percent in the fourth quarter, slightly larger than first estimated and higher than the 4.5 percent rate in the third quarter.

The U.S. trade deficit continued to be a drag on economic growth. Imports grew at a 10 percent rate in the fourth quarter, down from a 14.9 percent rate in the third quarter. Exports rose at a 8.7 percent rate, stronger than previously estimated, but down from a 11.5 percent rate posted in the third quarter.

Even though overseas' demand for U.S. products is picking up, U.S. manufacturers continue to feel the lingering effects of the global financial crisis that struck in 1997 and severely depressed foreign demand for U.S. goods.

All the changes show the economy growing at an annual rate of $150.3 billion in the fourth quarter of 1999, pushing the country's total output of goods and services to $9.05 trillion, after adjusting for inflation.

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