Economy barely grows in 4th quarter

Jobless claims for past month reach a two-year high

People line up for a job fair this week in New York. The average number of Americans filing first-time claims for unemployment benefits over the last four weeks rose to 358,000, the highest since October 2005. (Mark Lennihan/Associated Press)

WASHINGTON - The US economy grew at an annual pace of 0.6 percent from October though December, weakened by a deepening housing slump that may be bringing an end to the six-year expansion.

The gain in gross domestic product followed a 4.9 percent third-quarter growth rate, the Commerce Department said yesterday. Measures of inflation were revised down and corporate profits dropped.

Claims for jobless benefits over the past month were at the highest level in more than two years, a separate report showed, indicating a rise in firings that may further slow consumer spending. With declines in business investment and construction, the world's largest economy may not grow from January through March.

"It's hard to see any good news at all," said Nariman Behravesh, chief economist at Global Insight Inc., a Lexington, Mass., forecasting firm. "Housing is still dropping like a stone and now the consumer is slowing, too. That's the big difference" from last quarter.

Yesterday's report was the final of three estimates provided by the government. The advance reading on first-quarter growth is due April 30. Economists forecast a final GDP reading of 0.6 percent, according to the median projection in a Bloomberg News survey.

The figures yesterday included a first look at corporate profits for the quarter. Earnings dropped 3.3 percent, a second straight decline, to an annual rate of $1.57 trillion.

The drop may even be understated because the government doesn't take into account asset write-downs and loan-loss provisions in calculating current-quarter profits. Financial firms still recorded a 15 percent drop in profits last quarter, even without reflecting those losses.

For all of last year, profits were up 2.7 percent, the smallest gain since a decline in 2001.

The average number of Americans filing first-time claims for unemployment benefits over the last four weeks rose to 358,000, the highest since October 2005. The figures indicate employers are cutting jobs or delaying hiring.

"That's a pretty good indication of the softness in the labor markets," said Stephen Gallagher, chief US economist at Societe Generale SA in New York. "Businesses are nervous and are cautious."

Companies continue to pare jobs. Western Union Co., the biggest US money transfer business, said last week it'll close offices in Missouri and Texas, cutting 650 union jobs. A weaker economy and tighter immigration controls have limited domestic money transfers and remittances to Mexico, hurting the Englewood, Colo.-based company.

Employers cut 85,000 jobs in the first two months of this year, the most in nearly five years, Labor Department figures showed this month.

The GDP report showed prices rose at a 2.4 percent pace in the last three months of 2007, down from the 2.7 percent estimated previously. Excluding food and fuel, consumers paid 2.5 percent more for goods and services at an annual rate, down from the 2.7 percent projected last month.

Consumer spending, which accounts for more than two-thirds of the economy, rose at a 2.3 percent annual rate in the fourth quarter, revised up from the 1.9 percent increase previously estimated, according to yesterday's report. Spending rose 2.8 percent in the third quarter.

The weakening labor market, combined with higher food and energy costs and the ongoing slump in housing, has unnerved consumers this quarter. The Conference Board said this week its confidence index fell to a five-year low in March.

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