WASHINGTON—The U.S. economy expanded at a glacial pace in the fourth quarter and applications for jobless aid jumped last week, according to government data that raised fears of a looming recession.
Gross domestic product, which measures total goods and service output in the United States, rose at an annual rate of 0.6 percent. It was slowed by a collapse in spending on new homes and a slump in inventories, and was slightly weaker than the 0.7 percent pace forecast by analysts polled by Reuters.
It was the Commerce Department's second of three readings for fourth-quarter GDP and slowed from 4.9 percent in the previous three months. GDP grew 2.2 percent for all of last year, the weakest since 2002, the department said.
Some analysts say the economy has already slipped into recession, but President Bush disagreed.
"There is no question the economy has slowed down," he told a White House news conference. "I don't think we're headed into a recession, but there is no question we are in a slowdown."
Federal Reserve Chairman Ben Bernanke also warned the economy remained at risk, but dismissed comparisons with the stagnation of the 1970s, when inflation hit double-digits.
"I don't anticipate stagflation," Bernanke said under questioning by the Senate Banking Committee. "I don't think we're anywhere near the situation that prevailed in the 1970s. I do expect inflation will come down."
U.S. stocks slipped after the weaker-than-expected GDP and the jump in weekly jobless claims. Hopes for lower interest rates boosted U.S. government debt prices and pushed the dollar to a record low against the euro.
Jobs Woe
Labor Department data showed that the number of U.S. workers applying for first-time unemployment benefits rose a much bigger than expected 19,000 last week.
"Jobless claims was disappointing. Claims are inching into recession-like territory now that they are getting closer to 375,000 on the four-week moving average," said Cary Leahey, an economist at Decision Economics in New York.
"Jobless claims was one of the last series of numbers still giving positive signals on the economy and it, too, is fading," Leahey said.
First-time jobless claims increased to a seasonally adjusted 373,000 last week from a revised 354,000 the prior week. That was much higher than the 350,000 claims forecast by economists and last week's initially reported 349,000.
The Conference Board, in a separate labor market report, said its index of help-wanted ads in U.S. newspapers edged down in January to 21, from a reading of 22 in December.
In other signs of a weakened labor market, the number of workers remaining on jobless benefits rose to 2.81 million in the week ended Feb. 16, the most recent week these data were available, The Labor Department said. That was the highest since October 2005 in the aftermath of Hurricane Katrina.
Based on the jobless claims, economists at Lehman Brothers lowered their estimate for February's payrolls report to just 15,000 new jobs from a previous estimate of 35,000. Non-farm payrolls unexpectedly shrank 17,000 in January. The report is due on March 7.
"On balance, this points to continued slowdown in employment which will fuel concerns about a recession here in the U.S.," said Omer Esiner, a market analyst at Ruesch International in Washington.
Slender Growth
Imports fell in the fourth quarter, but this was offset by a $10.1 billion drop in private inventories, versus a $3.4 billion decline initially reported. Residential investment crashed 25.2 percent in the steepest fall since 1981.
Housing market woes that sparked a global credit crunch have forced the Federal Reserve to aggressively cut interest rates by 225 basis points since mid-September.
While Bernanke warned about the risks to the economy, he also cautioned that inflation was under close scrutiny.
The personal consumption expenditures price index excluding food and energy, the Fed's favored inflation gauge, was unrevised, rising at an 2.7 percent annual rate in the fourth quarter. While that matched forecasts, it is above the comfort zone of 1.5 to 2.0 percent voiced by some Fed policy-makers and follows a 2 percent rise in the previous three months.
Consumer spending, which accounts for more than two-thirds of U.S. growth, rose at a revised annual pace of 1.9 percent versus a previous estimate of a 2 percent gain.
"The good news was that GDP was not downwardly revised closer to zero in the fourth quarter, but it does suggest that growth was very slow in the last quarter of 2007 and is likely to be slow this quarter," said Decision Economics' Leahey.
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