US GDP Rise Fails to Quell Recession Fears

02 April 2007

WASHINGTON DC: The US economy grew a better-than-expected 2.5% in the last quarter of 2006, according to the latest data from the Commerce Department. The figure was revised upward from an estimate of 2.2% last month.

The small fillip in GDP stemmed in the main from businesses investing more than previously estimated, reportedly to build their inventories of unsold goods, especially automobiles.

However, the numbers marked the third quarter in a row when growth notched a sluggish 2% or better, reflecting the slump in the housing market and overall business growth.

Many US economists expect GDP to remain mediocre, hovering around 2% in the current January-to-March quarter.

The department also reports that corporate profits slowed in Q4, rising just 0.8% over Q3 and signalling a possible weakening in business investment.

Falling demand and rising labor costs are squeezing profits. Retail sales were flat in February after creeping 0.1% higher in January. Business sales fell 0.7% in January and had gone up 1.9% in the previous 12 months.

The Labor Department says unit labor costs increased by 6.6% in Q4, up from 1.1% in the previous quarter. Labor costs rose an average 3.2% in 2006, the sharpest annual hike since 2000.

Increasing disquiet over the Bush administration's steering of economic policy and ever louder whispers of recession were addressed by Federal Reserve chairman Ben Bernanke when he made a congressional appearance last week.

He stuck to the Fed's forecast for the economy to log moderate economic growth and for inflation to ease in the coming quarters. But he did acknowledge uncertainties had grown in recent weeks and that there were risks.

Data sourced from Wall Street Journal Online; additional content by WARC staff