Trends
The U.S. economy was significantly stronger in 2004 than in recent years. Real gross domestic product (GDP) increased 4.4 percent for the year - its highest jump since 1999. The 3.1 percent increase in the fourth quarter marked the thirteenth consecutive quarter of positive growth. Moreover, between the fourth quarters of 2003 and 2004, real personal consumption expenditures, real gross private fixed investment, and real exports rose 3.9, 10.6, and 4.1 percent, respectively. Industrial production was also up by 4.3 percent over the year. On the negative side, real imports outpaced the growth in real exports with a 9.2 percent increase in 2004, continuing a pattern of large trade imbalances.
Americans, by and large, were more optimistic in the fourth quarter, according to both the National Federation of Independent Business' Optimism Index and the University of Michigan's Consumer Sentiment Survey. The December NFIB survey also shows that 28 percent more small businesses plan to expand rather than contract in the next three months, and the net percentage planning to hire in the next three months is 17 percent. Each of these figures exceeds the annual averages over the past five years.
The unemployment rate fell to 5.4 percent in September 2004, and ended the year at that same rate. For the year, the economy added 2.2 million nonfarm payroll jobs, 606,000 in the fourth quarter. These new jobs in the fourth quarter were in every industry sector, with the exception of manufacturing, which lost 12,000 workers. Overall manufacturing employment was up 76,000 workers for the year. Nonfarm productivity increased just 0.8 percent in the fourth quarter, significantly lower than in previous quarters and years; over the longer view, however, it increased 4.1 percent between the averages of 2003 and 2004.
Interest rates have continued to move upward as a result of a growing economy and the efforts of the Federal Reserve to reduce inflationary pressures. Consumer and producer prices increased at annualized rates of 3.0 and 6.7 percent, respectively, in the fourth quarter; if energy costs are excluded, the rates are 1.2 and 3.9 percent, respectively. The price of oil fell from an average of $53.13 a barrel in October to $43.33 a barrel in December.
According to the Senior Loan Officers Survey, small business demand for commercial and industrial loans remained strong; a quarter of all respondents continued to ease rather than tighten lending standards. In 2004, $2 billion more was invested in venture capital deals than in 2003, according to the National Venture Capital Association; $5.3 billion was invested during the fourth quarter.
