Saturday, January 29, 2000

Fourth-quarter growth: 5.85%

Spurt sparks inflation talk

The Associated Press

        WASHINGTON — The U.S. economy, propelled by hardy consumer spending, finished 1999 on a vibrant note, but the growth came at a price: a worrisome uptick in wages and benefits that economists fear could trigger inflation.

        During the final three months of 1999, the economy grew at a breakneck annual rate of 5.8 percent, the biggest growth spurt since the end of 1998, the Commerce Department said Friday.

        For all of 1999, the nation's gross domestic product, its total output of goods and services, increased by 4 percent, the third year in a row at 4 percent or higher.

        President Clinton boasted about the economy at a White House meeting with mayors. “This unbelievable recovery marches on,” Mr. Clinton said, referring to the uninterrupted economic growth since the 1990-1991 recession that will set a record of eight years and 10 months next week.

        At the same time, another government report showed Friday that employees' wages and benefits surged 1.1 percent in the fourth quarter, rekindling worries about inflation and higher interest rates.

        “The rising tide of economic growth has stirred up inflation in its wake,” said Richard Yamarone, an economist with Argus Research Corp.

        With the roaring economy driving down the nation's unemployment rate to its lowest point in 30 years, employers are having trouble finding workers. Some employers are wooing potential employees with higher wages and benefits. That's good for workers, but economists fear that those increased costs could lead to inflation.

        The 1.1 percent spike in the Labor Department's Employment Cost Index, considered the best measure of changes in wages and benefit costs and closely watched by Federal Re serve Chairman Alan Greenspan, stemmed from a 1.3 percent jump in benefits, the biggest increase in six years. Economists blamed rising health care costs.

        “Both reports contain the smoking gun that the Fed has been worried about — wage pressures are surfacing, and inflation is on the uptick,” First Union economist David Orr said.

        The Federal Reserve meets next week to decide interest rate policy, and most economists expect the Fed to boost rates by a quarter of a percentage point to slow the red-hot economy and keep inflation from escalating.

        A few economists said Friday's reports might put pressure on the Fed to bump up rates by half a point Wednesday. But more economists said the reports raise the odds that the Fed will follow up next week's expected increase with a quarter-point rate boost March 21.


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- Fourth-quarter growth: 5.85%