31 January 2001, 18:26  Q4 inventory in GDP seen showing possible negative Q1 growth

--US Q4 GDP supports Fed 50-bp cut this afternoon: analysts
By Mariko de Couto, BridgeNews
New York--Jan. 31--Fourth quarter gross domestic product growth in the U.S. was lower than expected and the worst has yet to come, economists said. The persistence of high inventory levels in the fourth quarter suggests the possibility of negative growth in the first quarter as stockpiles need to be worked off aggressively, they said.
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While there is no question that the latest GDP data supports a 50-basis-point cut at the Federal Reserve policy meeting ending today, economists said that an easing of a larger magnitude is probably not in the cards.
The Fed is expected to announce its policy decision--which is widely expected to be a 50-basis-point cut--around 1415 ET after a two-day meeting of the Federal Open Market Committee this afternoon.
Fourth quarter GDP growth stood at 1.4% which was the slowest growth level since the second quarter of 1995. The reading compares with a 2.2% growth rate in the third quarter.
Consumer spending, which accounts for 75% of output, remained in positive territory but slowed substantially to a growth pace of 2.9% from a rise of 4.5% in the third quarter.
And one of the most worrying portions of the report was the level of inventories which subtracted only 0.2 percentage point from growth. In addition, business and software spending contracted 4.7% compared with a 5.6% decline in the third quarter.
One of the few bright spots in the report was the 2.9% gain in government spending which was down 1.4% in the third quarter. Also, the contraction in residential spending improved to a 2.5% decline compared with a 10.6% drop in the third quarter. And the GDP price deflator remained tame at a growth level of 2.1% compared with 1.6% in the third quarter. (Story .4739)
John Lonski, senior economist at Moody's Investors Service, said that the inventory accumulation which persisted in the fourth quarter suggests the ongoing inventory adjustment has to be aggressive in the current quarter.
"We could see a slowdown in favor of the possibility of negative growth" in the first quarter, he said. More
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