The nation's economy grew at a solid 4 percent annual rate in the fourth quarter, a sharp decline from the fevered pace of the previous quarter, the Commerce Department reported yesterday.
The slower growth is more than adequate to propel the strengthening economy, and President Bush said he was "optimistic" about the outlook after a meeting with economists.
Health of the economy and growth in jobs will be key issues for Bush in his re-election bid this year. Relatively few jobs have been created by the blossoming recovery.
The Dow Jones industrial average fell 22.22 points yesterday as investors showed their disappointment at the economy's failure to achieve a predicted 4.8 percent annual growth rate in the quarter.
And some experts expressed concern that the recovery might be less robust than had been anticipated. "It was definitely on the weak side overall," said Dean Baker, co-director at the Center for Economic and Policy Research, an independent economic think-tank in Washington. "We don't have much to push the economy forward."
Others were more optimistic.
"There is nothing wrong with 4 percent," said Alan D. Levenson, chief economist at T. Rowe Price Associates, a Baltimore-based mutual fund company. "It tells you how far the recovery has come if people are wondering if we should be disappointed with 4 percent growth."
The announcement comes against the backdrop of growing concern over a mounting federal budget deficit and still uncalculated costs of the war in Iraq, rebuilding Afghanistan and fighting terrorism around the world.
The Bush 2005 budget, which will be sent to Congress on Monday, is expected to show a staggering $520 billion deficit, 10 percent more than estimated just a few weeks ago.
Some conservative Republicans have expressed fears that the deficit is out of control, and Democratic presidential candidates have hammered the president for plunging the country deep into the red.
Alice M. Rivlin, former White House budget director under President Bill Clinton, and currently the director and senior fellow of economic studies at the Brookings Institution in Washington, worries that if the deficit is not reduced, the effect could be felt three to five years from now as government borrowing forces interest rates higher and slows the economy.
"Deficits do matter," Rivlin said. "Long-run sustained deficits are bad for growth, and they are risky. If we are seen as losing control of our own budget ... then we may be seen by foreign investors as irresponsible. Once that happens, they could be taking their money out of U.S. securities pretty rapidly."
Bush reiterated yesterday his promise to slash the deficit in half over five years.
"Congress is now going to have to work with us to make sure that we set priorities and are fiscally wise with the taxpayers' money," Bush said. "And so the budget we submit will show that we can cut the deficit in half over a five-year period."
Many economists were upbeat yesterday about the economy's prospects and said the fourth-quarter growth in gross domestic product was solid. GDP is the sum of all goods and services produced within U.S. borders.
"The recovery is definitely on track, I think there is no question," said Steven Cochrane, senior economist at Economy.com in West Chester, Pa. "Anyone who denies that is ignoring so much of the evidence out there aside from the labor market."
Rivlin agreed saying the economy, in the short run, is "coming back."
"At this point, I see it growing quite strong," she said. "Nobody knows for how long. We certainly have some momentum."
Some experts said yesterday's report was proof that the expansion, which has been driven by consumer spending, is being propelled by more than one cylinder.
In the fourth quarter, business investment in software, computers and industrial equipment grew at an annual rate of 10 percent - brisk growth but down from the torrid 17.6 percent rate in the third quarter, according to the Commerce Department.
Exports of goods and services jumped at an annual rate of 19.1 percent, nearly double the rate of growth in the prior quarter.
"It looks like the weak dollar is finally generating some overseas demand," Cochrane said. "The global economy looks like it is improving."
But others worried about a weakening recovery.
Spending by state and federal governments slipped in the quarter, and disposable personal income declined.
Baker, the co-director at the Center for Economic and Policy Research, said that if income continues to fall, consumers could rein in spending.
"I see very little prospects for strong consumption going forward," he said. "Absent consumption, [corporate] investment has to take up the slack; the story there isn't that good."
"I will be revising downward," said Charles W. McMillion, president and chief economist at MBG Information Services, a Washington-based business information analysis and forecasting firm. "The concern is that they [the Bush administration] have paid this extremely high price for it [growth] and have still not created conditions to sustain the recovery."
McMillion said a falling income and lower savings rate could compound consumers' problems. The rate slipped to 1.5 percent, compared with 2.3 percent in the third quarter.
One of the biggest worries about the recovery is that few jobs have been created. Last month, 1,000 were added when the economy should be adding anywhere from 150,000 to 200,000 jobs a month.
"I think we should see it [hiring] in the next month or two; it will happen slowly," said Cochrane, who like other economists think the December number was a fluke and will be revised upward. "My guess is come midyear we are going to see better job creation."
Baker said the issues that matter to voters include the economy, health care, wages and jobs.
"I think the economy will be a negative for [Bush]," Baker said. "That doesn't guarantee that he won't get back in the White House."