Economic growth in 2007 weak but hiring holds up
WASHINGTON (Reuters) - Growth in the U.S. economy slowed abruptly in the fourth quarter as consumers curbed spending and home building plunged, according to a government report on Wednesday that kept fears of recession alive.
The Commerce Department said gross domestic product, a measure of total goods and services output within U.S. borders, grew at an annual rate of 0.6 percent in the last quarter of 2007, while it expanded 2.2 percent over the whole year, the slowest pace in five years.
"No question, the GDP number tells us the economy is on the brink of recession, if not in one already," said Peter Boockvar, an equity strategist with Miller Tabak & Co. in New York.
A private sector report showing employers added three times as many jobs as expected in January lifted some of the gloom surrounding the growth figures. ADP Employer Services said U.S. private employers added 130,000 jobs in January.
That led some analysts to boost forecasts for the number of new jobs in January, which the Labor Department will announce on Friday in its closely watched report on U.S. hiring.
There have been other reassuring hints recently of resilience in the economy, including robust orders for manufactured goods in December and lower weekly claims for jobless benefits.
That did not stop the U.S. Federal Reserve from cutting its benchmark federal funds rate by one-half percentage point to 3 percent, citing a deepening of the housing slump and some softening in labor markets.
U.S. stocks rallied after the cut in benchmark U.S. short-term interest rates -- the second in just over a week -- but quickly shed the gains after a CNBC television report that said two big bond insurers faced possible ratings downgrades.
The Dow Jones industrial average and the Nasdaq Composite Index each ended modestly lower.
Bonds were mixed, with shorter maturities rising in price after the latest Fed rate cut, while 30-year bonds declined because of investor concern that inflation risks were rising.
MOMENTUM WANING
Some economists noted that the GDP report indicated a disconcerting rise in prices, but the Fed said it expected inflation to moderate in the coming quarters. That would give the U.S. central bank more leeway to cut rates even further.
The White House said the GDP report did not change its economic outlook and officials cited the slowdown as a reason to urgently pass a fiscal stimulus package that is waiting for Congressional approval.
"We're not happy with 0.6 percent growth," Commerce Secretary Carlos Gutierrez said in a telephone interview. "This is why we need to get that stimulus package out the door as soon as possible and get checks into the hands of consumers as soon as possible."
The U.S. House of Representatives has approved measures worth about $146 billion, but the White House is squabbling with the Senate over lawmakers' calls for a more substantial boost including extended unemployment insurance benefits. Continued...
