GDP Up 4% In Q4, Short Of Forecasts But Still Solid Gain; Q3's Torrid Pace Cut In Half; January data on Midwest factories assure growth is continuing into new year.(A)

Byline: JED GRAHAM

The U.S. economy grew a solid 4% last quarter, the Commerce Department said Friday, settling to a more sustainable pace after the third quarter's torrid 8.2%.

While consumer spending growth slowed markedly, broad-based gains in business investment, exports, inventory building and housing kept the economy cruising. Growth in the second half averaged an impressive 6.1%. For the year, GDP grew 3.1% vs. 2.2% in 2002 and 0.5% in 2001.

Treasuries rallied after growth came in slower than the 5% that Wall Street expected. The 10-year yield fell 6 basis points to 4.13%.

But the GDP report, along with sizzling Chicago factory activity in January, did more to reinforce growth expectations for the coming year than to raise any doubts.

"It's really confirming the economy is on a sustained growth path," said Ethan Harris, chief U.S. economist at Lehman Bros., noting most forecasters had been expecting closer to 3% growth a few months ago. Harris sees GDP growth of 4.5% this year.

His confidence about 2004 has more to do with business spending than the consumer. With profits surging, inventories depleted and demand on the rise, companies have the means and the need to boost investment and hiring.