NEW YORK (CNN/Money) -
The U.S. economy slowed to a crawl in the fourth quarter of 2002, growing at the weakest pace since the recession of 2001, the government said Thursday.
Gross domestic product (GDP), the broadest measure of the world's largest economy, grew at a 0.7 percent rate in the quarter after growing at a 4 percent rate in the third quarter, the Commerce Department reported. Economists, on average, expected GDP growth of 0.9 percent, according to Briefing.com.
"The Federal Reserve has talked about the economy being in a soft spot -- well, it's really in a soft spot," said Robert Brusca, chief economist at Native American Securities.
Still, the number likely came as a relief to the small number of economists who thought GDP would actually shrink in the quarter, something that hasn't happened since a recession that began in March 2001 and likely ended by early 2002.
Separately, the Labor Department said the number of Americans filing new claims for unemployment benefits rose to 397,000 in the week ended Jan. 25 from a revised 383,000 the prior week.
Economists, on average, expected 385,000 new claims, according to Briefing.com. Any number at or above 400,000 is generally considered to be indicative of an ailing labor market.
"The claims numbers always do strange things at the end of the year," Brusca said. "There was some improvement at the turn of the year, but the story is that claims are gravitating back to the 400,000, where they were for quite while."
On Wall Street, stock prices fell while Treasury bond prices were mixed.
For the full year 2002, GDP grew at a 2.4-percent pace -- relatively weak in historical terms, but much better than the 0.3-percent growth in 2001.
Weak economic growth in the fourth quarter was due in large part to anemic growth in consumer spending, which makes up more than two-thirds of the total economy. Spending grew at a paltry 1 percent rate in the quarter, following 4.2 percent growth in the third quarter.
It was the worst performance for consumer spending since 0.8 percent growth in the first quarter of 1993, when the economy was recovering from another "jobless" economic recovery.
On a brighter note, business investment rose at a 1.5 percent rate, compared with the third quarter's 0.8 percent pace of contraction, marking the first expansion in the sector since the third quarter of 2000.
While businesses might have tentatively started to spend again, they were hiring very little, and the economy shed nearly 200,000 jobs in November and December.
A 1.7-percent drop in exports, combined with a 3.7-percent jump in imports, also eroded the strength of GDP in the quarter.
Inflation, as measured by the Commerce Department's GDP price deflator, rose just 1.8 percent in the quarter, compared with 1.2 percent in the third quarter. Excluding volatile food and energy prices, inflation rose just 1.4 percent.