The economy grew at an annual rate of 1.4 percent in the fourth quarter, the Commerce Department reported Friday, which is twice the pace the government reported a month ago.
But two other economic reports released Friday showed a slowdown in Chicago-area manufacturing and a drop in consumer sentiment to its lowest level in more than nine years.
The fourth-quarter rise in gross domestic product, to a total of $9.52 trillion when adjusted for inflation, followed a 4 percent increase in the third quarter and a 1.3 percent gain in the second quarter.
The revised figure doubled because consumer and company spending were stronger than previously estimated. The government’s final GDP figure is scheduled to be released on March 27.
“It lends credence to the belief that, absent the Iraq crisis, businesses would likely be spending more vigorously and helping shift the economy into a higher gear,” said economist Bill Cheney of John Hancock Financial Services in Boston.
Others weren’t so optimistic.
“Things aren’t necessarily getting worse, but they aren’t getting better in any type of robust fashion,” said Russ Koesterich, North American equity strategist for State Street Corp. “It’s a nominal positive, but not enough to really drive prices higher.”
The revised GDP figures showed businesses spent at the fastest rate in two years to rebuild inventories.
Inventory spending hit an annual rate of 2.5 percent, to $24.7 billion, a huge upward revision from the $3.3 billion estimated last month and the strongest showing since $59.9 billion in the fourth quarter of 2000.
“As far as inventories go, there could be some involuntary buildup ahead of a possible war,” said economist Alan Ruskin of 4CAST Ltd. in New York.
The estimate of consumer spending also was revised upward to show a 1.5 percent rate of increase in the fourth quarter. That’s faster than the rate of 1 percent estimated last month, but much slower than the 4.2 percent third-quarter pace and the slowest rate since the third quarter of 2001, when the Sept. 11 terrorist attacks occurred.
Spending on home construction and by the government also contributed to growth. Spending on residential construction rose 9.4 percent, more than the previously reported 6.8 percent gain. Government spending increased at a 4.9 percent annual pace last quarter, up from a previous estimate of 4.6 percent.
In 2002, the economy grew 2.4 percent, and growth this year may be little better, according to economists.
“We look for another two quarters of fitful growth of about 2 percent or so to be followed by accelerating … growth in the second half of 2003,” said economist Joe Liro of Stone & McCarthy, a financial-markets research firm.
In another report, the National Association of Purchasing Management-Chicago’s factory index fell to 54.9 in February from 56 in January. A reading greater than 50 signifies expansion and one below 50 signifies contraction. Economists had expected a reading of 52.5.
Chicago-area companies are increasing production to fill new orders after cutting stockpiles for 35 months, the longest inventory reduction since World War II ended.
Also Friday, the University of Michigan said its consumer sentiment index fell in February to 79.9 from 82.4 in January. It’s the lowest the index has been since September 1993, when it was 77.9.
“Confidence is not the right word to describe what many Americans feel today,” said Richard Hastings, chief economist at Cyber Business Credit.
The threat of war with Iraq, fears of terrorism and a surge in oil prices this year were blamed for the decline.
