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Wednesday, March 31, 1999 Published at 13:57 GMT 14:57 UK

Business: The Economy

US growth explosion

The US economy is growing at a blistering pace

The US economy finished 1998 with an explosion of growth, but it wasn't enough to prevent the decade's first drop in corporate profits.

The gross domestic product surged at a seasonally adjusted 6% annual rate during the last three months of the year, the Commerce Department reported on Wednesday.

[ image: Corporate profits are skating on thin ice]
Corporate profits are skating on thin ice
That was down only slightly from the department's earlier estimate of 6.1% and was enough, with earlier quarters' performance, to increase the sum of all goods and services produced within US borders by a robust 3.9% in 1998.

However, the department's first estimate of after-tax corporate profits showed a drop at a 1% rate in the fourth quarter, marking the third quarterly decline of the year.

And for all of 1998, profits slipped 2.2%, the first drop since 1989, when profits fell 4.8% in a precursor to the 1990-91 recession.

Profits squeezed

Profits are being pinched by the combination of increasing labour costs and the inability of manufacturing firms to raise prices in the face of stiff price competition from imports produced in countries with devalued currencies.

Nevertheless, Wall Street remains undaunted. The Dow Jones average of industrial stocks broke the 10,000 barrier for the first time on Monday.

Plentiful jobs and surging stock prices have been the principal fuel of the growth in consumer spending, which represents about two-thirds of economic activity.

It rose at a 5% seasonally adjusted annual rate in the fourth quarter and 4.9% for all of 1998, the most in 14 years.

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