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Wednesday, 31 January, 2001, 17:54 GMT
Sharp US slowdown confirmed
US economic growth fell to 1.4%
The US economy grew at its slowest rate for five and a half years in the final three months of 2000, according to official Washington figures.

Financial analysts had expected growth to drop to 2.3%.

But the Commerce Department said gross domestic product (GDP) fell to 1.4% in the final three months of 2000.

This indicated that slack in US economic activity was even greater than experts had thought.

"This morning's numbers were ugly," said Joe Liro, equity strategist at Stone & McCarthy Research Associates.

Alan Greenspan testified before congress that US growth was near zero
Fed chairman Alan Greenspan warned of severe economic slowing

Mr Liro was concerned by high inventory levels, a problem as companies will have to reduce production in the coming weeks and months in order to compensate for current high levels.

"We are vulnerable here," he said, adding that with growth dropping to about 1%, a snow storm or other natural disaster could push GDP growth to zero or even into negative territory.

The disappointing fourth-quarter figure follows recent testimony by the chairman of the central bank, Alan Greenspan, before the US Congress.


We had weak growth despite the fact that inventories accumulated at a high rate

Joe Liro, Stone & McCarthy

Before the Senate finance committee Mr Greenspan said that growth was currently "near zero" as a result of sharp economic slowdown.

Wednesday's GDP figures compared with a final revised growth rate of 2.2% in the third quarter and provides one of the strongest indications to date that the end of the longest economic boom in US history may be in sight.

"This bodes poorly for growth in the first quarter of 2001 and could increase the amount the Fed cuts rates," said David Horner of Merrill Lynch.

Rate decision due

The fresh GDP data further cements beliefs that the US central bank, the Federal Reserve, will announce a sizable interest rate cut at the completion of its two-day meeting on Wednesday.

The Fed is due to issue its decision at 1915 GMT.

In a surprise move in early January, the US central bank dropped its key interest rate by 0.5% to 6%, which sent stock markets soaring. Stocks in the US have continued an upward trend in anticipation of further rate cuts.

In recent days, financial analysts have debated whether the Federal Open Market Committee (FOMC), the policy-making arm of the Federal Reserve, would lower interest rates by 0.25% or 0.5%.

George W Bush intends to tackle economic slowing
Newly elected president George W Bush must contend with a slowing US economy

Now, some analysts and stock traders are wondering if the Fed might even drop interest rates by 0.75%, a full 0.25% ahead of previous expectations.

The call follows Tuesdays unexpected drop in consumer confidence, a measure of consumer's faith in the US economy, to its lowest level in more than four years.

The January figures showed the Conference Board index at 114.4 - its lowest level since December 1996 - compared with 128.6 in the prior month.

The Fed had raised interest rates six times between June 1999 and May 2000, as part of an effort to bring the economy slowly back to earth after quarterly GDP growth topped 5%.

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See also:

26 Jan 01 | Business
UK growth slumps to two-year low
17 Jan 01 | Business
US recession could be short-lived
21 Dec 00 | Business
US economy slows sharply
22 Dec 00 | Business
The $3,000bn question
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