US economic expansion slows
Only a rise in exports keeps fourth-quarter GDP from contracting
The US economy expanded less than forecast in the fourth quarter as domestic spending fell and only a rise in exports prevented an overall contraction.
Gross domestic product rose at a 0.6 percent annualized rate, unchanged from the initial estimate last month, after a 4.9 percent gain in the third quarter, the Commerce Department said yesterday.
"There's a better-than-even chance that we have actually entered a recession," Harvard University economist Martin Feldstein said. "The numbers for December and January have basically been flat to down."
The report, combined with figures yesterday showing claims for unemployment insurance jumped last week, reinforced traders' expectations that the Federal Reserve will cut interest rates again and helped drive the dollar to a record low against the euro. Investors raised the odds of a three-quarter point cut in the benchmark rate by the end of the next meeting on March 18 to 34 percent from 10 percent yesterday.
Fed chairman Ben Bernanke, testifying to the Senate Banking Committee yesterday, signaled he's ready to cut interest rates again.
The median estimate in a Bloomberg News survey of 74 economists was for a 0.8 percent increase in GDP.
Feldstein is also president of the National Bureau of Economic Research and a member of its business-cycle dating committee, which marks the start and end of expansions. He said it could be months before NBER declares if a recession has officially started.
The Labor Department said initial unemployment claims rose 19,000 last week to 373,000, higher than forecast. The level was the second-highest since a surge in claims in the aftermath of Hurricane Katrina in 2005.
"We have absolutely no momentum going into the first quarter," said Josh Shapiro, chief US economist in New York at Maria Fiorini Ramirez Inc. "Things are looking pretty grim for the economy. If we're not in a recession already, we're very close."
The trade deficit narrowed to an annualized $506.8 billion, adding 0.9 percentage point to GDP.
Excluding the improvement in trade, the economy would have shrunk at a 0.3 percent annual pace, the first decline since 2001, the most recent recession.
Consumer spending, which accounts for more than two-thirds of the economy, rose at a 1.9 percent annual rate in the fourth quarter, down from the 2 percent increase estimated last month, according to yesterday's report. 