By Jeannine Aversa
The Associated Press

WASHINGTON - The economy faltered in the final quarter of last year as consumers - nervous about a war with Iraq and their own job prospects and stock portfolios - turned cautious and increased their spending by the smallest amount in almost a decade.

Gross domestic product rose at an annual rate of 0.7 percent in the fourth quarter, a dramatic slowdown from the previous quarter's 4 percent growth rate and ending 2002 on a sour note, the Commerce Department reported Thursday.

GDP measures the total value of goods and services produced within the United States and is considered the broadest barometer of the economy's health.

"One quarter, we're soaring; the next, we're flat on our back. That was the story of 2002," said Joel Naroff, president of Naroff Economic Advisors.

The performance - weaker than analysts were predicting - gave the fourth quarter the distinction of being the worst quarter for GDP in 2002. It also was the weakest showing since the economy shrank at a 0.3 percent rate in the third quarter of 2001 as the country was mired in its first recession in a decade.

But analysts think the economy is picking up momentum in the current quarter, expanding at a rate of 2.5 percent to 3 percent.

"If the Iraq situation is resolved quickly and favorably, there's a good chance of unlocking the economy's potential and removing the uncertainty hanging over consumers and businesses," said Lynn Reaser, chief economist at Banc of America Capital Management.

For all of 2002, the economy grew by a decent 2.4 percent, a big improvement over the tiny 0.3 percent rise registered in 2001, but still considered weaker-than-normal growth for the U.S. economy.

Consumers - the main force keeping the economy going - got tired in the fourth quarter. They increased their spending during the period at a 1 percent rate, the worst showing since the first quarter of 1993 and down from a 4.2 percent growth rate in 2002's third quarter.

The weakness reflected a sharp 7.3 percent cut in spending on durable goods such as cars and appliances.

That was a big turnaround from the astounding 22.8 percent rate of increase in the third quarter and was the largest reduction in spending on durable goods since the first quarter of 1991.

Local output up

Local businesses have seen production rise but have not increased payrolls, according to a survey released Thursday by the National Association of Purchasing Management-Cincinnati.

The survey shows nearly two-thirds of the companies reported that new orders rose in January, with production and order backlogs increasing as well. Still, 82 percent said the number of jobs was the same or down from December.