U.S. Growth Tops Expectations

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WASHINGTON, D.C.: Thanks in part to a strong Christmas shopping season and a sharp spike in 1996 exports, the Gross Domestic Product expanded by a healthy 2.5 percent last year, according to the Commerce Department. The fourth quarter GDP growth of 4.7 percent was the largest since the spring of 1994, and far exceeded the expected 3.8 percent increase. At the same time, inflation dipped to just 2.1 percent in the fourth quarter. Even though the GDP grew 25 percent more last year than in 1995, when it rose 2 percent overall, few market anaylsts expect a worrisome raise in inflation. Sustained growth could create inflationary pressures as labor demands drive up wages and prices, causing the Federal Reserve to hike the cost of borrowing. But growth is likely to be lower this quarter, easing fears of an overheated economy. Investors were also reassured by Fed Chairman Alan Greenspan's statement Thursday that the Consumer Price Index is overstating inflation, a sign that the Federal Reserve probably won't raise interest rates at its monthly meeting next Tuesday.