GDP Shows Bright Spots but Durable Softness

The paltry gain in fourth-quarter gross domestic product is further evidence that the economy entered a soft spot last summer. Although the report was weak, the data will provide relief to those who were worried that the fourth quarter might actually register a decline in economic output and signal that a double-dip recession is a legitimate threat.

Real GDP -- the output of goods and services produced by labor and property located in the U.S. -- increased at an annual rate of 0.7% in the fourth quarter, according to advance estimates released by the Bureau of Economic Analysis. The consensus estimate called for a 0.9% rise. In the third quarter, real GDP increased at an annual rate of 4.0%.

Capital Spending Survey

Others will welcome the GDP data for the increase posted in nonresidential fixed investment, the report's capital spending gauge. This key component increased for the first time since the third quarter of 2000, rising at a 1.5% rate in the fourth quarter. The increase was sparked by a 5% annualized gain in spending on equipment and software, the third-consecutive quarterly gain for this measure of technology spending.

Related Stories

Details Ease the Pain of a Weak Jobs Report

Although spending on equipment and software has been increasing, the dollar level of spending is still low compared with that of a few years ago. For example, in the fourth quarter of 2000, spending on equipment and software was $1.1 trillion. In the fourth quarter of 2002, that number fell to $989 billion.

The gain in nonresidential fixed investment has been weighed down in recent quarters by spending on structures, which includes commercial real estate. Commercial real estate activity was very soft in 2002, subtracting about $40 billion from GDP, or roughly 0.4%.

The weakness in spending on structures is at least partly attributable to the lack of terrorism insurance, which delayed many commercial real estate projects. But with Congress having passed a terrorism insurance bill at the end of last year, the drag from commercial real estate activity likely will diminish in 2003. Today's GDP report showed that spending on structures fell at a 9.3% rate in the fourth quarter, compared with an annualized decline of 26% seen over the previous four quarters.

---

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. He appreciates your feedback and invites you to send it to Tony Crescenzi.

TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.