The U.S. economy sprinted into the end of the millennium even faster than previously thought, driven by relentless consumer spending, inventory-building by businesses, and heavy government spending.
said Friday that the nation's gross domestic product grew an extraordinary 6.9% in the fourth quarter, its fastest pace since second-quarter 1996. That growth far exceeds the government's original estimate of a 5.8% increase a month ago.
The magnitude of the revision came as a surprise to Wall Street economists, who had been expecting the number to come in around 6.3% according to a
The latest revision raised total GDP growth for 1999 to 4.1%, still below 1998 growth of 4.3%.
Though the strong growth added fuel to arguments that
policymakers must continue raising interest rates to slow growth, it did little to move financial markets Friday. Analysts, already convinced that fourth-quarter growth was robust, are now more concerned with the economy's current performance.
In early trading Friday, the
Dow Jones Industrial Average
was down 64 points at 10,028, while the
Nasdaq Composite Index
was up 3 points at 4621. The inflation-sensitive 30-year Treasury bond was down 8/32 at 101 8/32.
In a testimony to Congress earlier this week,
, the Federal Reserve's chairman, reiterated his concerns that the unprecedented levels of consumer spending, buoyed by wealth gained in the stock market, is threatening to overheat the economy. As demand for goods and services threatens to outstrip supply, the prospects rise for an outbreak of inflation.
Higher interest rates usually curb growth by making it harder for businesses and consumers to borrow and spend. The Fed has raised short-term rates a full point since last June and is expected to continue doing so until economic activity slows to a less worrisome pace. The Fed's next policy meeting is March 21.
"These types of readings really show that the economy had much more momentum than the Fed thought when it started raising rates last year," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
In contrast to the sharp upward revision in growth, the report's measure of consumer prices did not get upwardly revised from its original reading of 2.5%. The inflation component, known as the chain-weighted price index, has recently gained favor with Federal Reserve and has replaced the consumer price index in the Fed's semi-annual reports to Congress.
The estimate on inflation remained unrevised despite excess growth in the quarter largely because of the fast-growing ability of U.S. workers to produce more goods and services in less time. The Labor Department recently reported that productivity grew at a 5% annual rate in the fourth quarter as the workforce continued to benefit from computer technology.
"The interesting thing here is the phenomenal productivity growth that this implies," said John Ryding, senior economist at Bear Stearns. "Based on the GDP report, we are likely to see fourth-quarter productivity get revised upward to the area of 6.6%."