Experts Mixed On State Of Economy

The economy registered its weakest growth in more than five years in the last three months of 2000, and a few analysts believe it may have stopped growing or even slipped slightly into reverse in the current quarter. Corporate profits, meanwhile, fell for the first time since 1998.

Against this backdrop, economists said the Federal Reserve, which has slashed rates three times since January by a total of 1.5 percentage points, will need to cut rates several times more to keep the foundering economy afloat.

The broadest measure of economic health — the gross domestic product — grew at an annual rate of just 1 percent in the October-December quarter, the Commerce Department reported Thursday. A drop in spending on big-ticket items by businesses and consumers accounted for most of the weakness.

It was the worst showing since a 0.8 percent growth rate in the second quarter of 1995.

On Wall Street, stocks seesawed throughout the day as doubts about earnings and the economy lingered. The Dow Jones industrial average closed up 14 points at 9,799.

The government's final reading on fourth-quarter GDP — the total output of goods and services produced in the United States — showed the economy expanded more slowly than the 1.1 percent and 1.4 percent rates previously thought.

CBS News Correspondent Jim Axelrod reports some of the nation's leading economists are mixed on just where the economy stands now.

Fed Chairman Alan Greenspan has estimated that growth at the beginning of this year was probably "very close to zero." Some analysts believe output actually shrank in the first quarter. Paul Kasriel, chief economist at the Northern Trust Co., who is in that camp, estimates GDP declined by 0.3 percent in the current January-March quarter.

Other economists, however, believe the economy in the first quarter is either growing at a slow pace of around a 0.8 percent rate or about the same pace posted in the fourth quarter.

Treasury Secretary Paul O'Neill said in early February that he thought the nation's economy might be stalled. Since Democrats accused the administration of talking down the economy to build momentum for President Bush's $1.6 trillion tax cut, O'Neill has sounded a more optimistic tone.

He said last Sunday that the economy probably remained in positive territory in the just ending first quarter, with a growth rate of between 0.25 percent and 0.75 percent.

But as inventory stacks up and orders slow down, Delphi, the world's leading auto parts supplier, is forced to cut 11,500 jobs. You don't have to be an oracle to explain what that means.

Bruce Steinberg, Merrill Lynch's chief economist, detects a definite slowdown. "The U.S. economy is barely growing. It was barely growing at the end of last year, and it's barely growing right now."

Even with the wide range of opinions on how the current quarter ultimately will fare, economists are hopeful that the record expansion as able to reach its 10th birthday this month and the country will escape the current slowdown without dipping into a recession. Most analysts are predicting growth will pick up in the second half of the year.

"There's no doubt that we have very, very minimal growth and conditions are soft at this point," said economist Joel Naroff, president of Naroff Economic Advisors.

"I think there's a good chance, especially if we get any stability in the stock market and consumer spending holds up enough to get manufacturing going again, we will have dodged a bullet as far as a recession is concerned, but it won't be by much," Naroff said.

Thursday's GDP report underscores just how quickly and deeply the economy has slowed since last spring, when expansion roared ahead at a 5.6 percent annual rate.

At that time, the Federal Reserve, worried that the economy could overheat, was raising interest rates to regulate growth at a more sustainable pace and avoid inflation.

This year, the Fed has cut rates to bolster growth. Steinberg believes the central bank will slash rates by another half percentage point in April, before its next scheduled meeting on May 15. "The current state of the economy requires more cuts and soon," he said.

Thursday's report also showed that after-tax profits of U.S. corporations fell in the fourth quarter by 4.3 percent, reflecting the toll of the economic slowdown and higher energy prices. That was the first decline since the fourth quarter of 1998, when profits dropped by 1.6 percent.

Consumer spending, which accounts for two-thirds of all economic activity, grew at a 2.8 percent rate, down from a 4.5 percent rate in the third quarter.

Consumer spending on big-ticket durable goods, such as cars, actually fell at an annual rate of 3.1 percent in the fourth quarter. Business investment on new plants and equipment decreased at a rate of 0.1 percent.

In another report, new claims for state unemployment insurance fell by 20,000 to 362,000 last week but still hovered at a level suggesting employers' appetite for workers has waned.

But on the other hand, the U.S. economy is still churning out 100,000 new jobs a month. And wages are growing at the rate of six percent per year.

"It's the mood of the nation that's in trouble, not the domestic economy. Our economy is in great shape," says analyst Al Goldman of A.G. Edwards.

Steinberg also sees a bright road ahead. He expects the economy to revive strongly. "I think next year will be a very strong year for growth."