US economy shows unexpected strength

The US economy grew 0.2% in the last three months of 2001, official data has shown.

The figure defied most economists' expectation that the world's largest economy would contract by up to 1%.

We are well positioned for recovery here

Diane Swonk, economist Bank One Corp

Wall Street analysts attributed the unexpected strength of the economy's performance to higher government spending and enthusiastic consumer take-up of zero percent financing deals offered by carmakers.

They also pointed to the rapid depletion of stocks in factories and warehouses while companies tightened their belts to weather the downturn. Firms had now reached the point where they needed to buy new goods and produce more, thus fuelling the recovery.

Recession or no recession?

The data for the last quarter of 2001 contrasted with the slump suffered between July and September, when the US economy shrank 1.3%.

A second consecutive quarter of contraction would have satisfied the common technical definition of a recession.

However, the figures are just the "first cut" of the raw data for October to December, and are based mainly on reports from manufacturing industries.

The previous set of GDP figures was revised downwards several times, and the US economy still faces the threat of a technical fall into recession.

Looking at a wider set of economic measures an official panel of senior economists, the National Bureau of Economic Research, declared last November that the US entered a recession in March 2001.

Recession-ette?

On Wall Street the figures were greeted with relief.

Dan Laufenberg, chief US economist at American Express Financial Advisors, said the numbers confirmed that "the economy is in recovery and that the recession probably ended sometime late last quarter".

Diane Swonk, economist at Bank One in Chicago, said the United States was "well positioned for recovery here. We almost have to look back and call this a recession-ette, rather than a recession".

The US central bank - the Federal Reserve - decided to leave interest rates unchanged at 1.75% on Thursday, in a sign that it too believes that the economy may be on the road to recovery.

The Fed cut rates 11 times last year in an attempt to stimulate economic growth and lessen the strength and depth of the slowdown.