The much-talked about U.S. recession was unmasked as figment of economists’ imagination with the latest GDP data today.

U.S. economic growth was revised up significantly in the final quarter of 2001. GDP rose a revised 1.4% annualized in Q4 compared to 0.2% growth estimated in the advance report.

This follows a 1.3% annualized drop in Q3, which was the only negative quarter in this recession. RBC Financial Group economists say that “if not for the fact that the National Bureau of Economic Research has already declared this a recession, the official definition (two consecutive quarters of negative growth) has been avoided.”

“The U.S. recession disappeared from Q4 GDP data,” confirms BMO Nesbitt Burns. “While 1.4% GDP growth is nothing to write home about, the economy was firming through the quarter and momentum into Q1 makes 3% GDP growth easily within reach. As Greenspan pointed out, investment and hiring have remained weak. Both trends lagged spending because businesses were cutting costs big time. Profits should rebound soon. Put simply, these figures are considerably higher than anyone was looking for back in December.”

Bank of Montreal economists say that the overall picture of the economy in Q4 remains one where a strong pickup in consumption was offset by sharp declines in investment and a large inventory drawdown. “Looking ahead to the first quarter of 2002 we expect momentum to pick up as the unwinding of inventories and the decline in investment and exports slows significantly. Consumption though remaining at high levels may retrace some of the strong gains in Q4. Overall we project GDP growth in the range of 2% to 2.5% in Q1.”

BMO also notes that the upward revision to growth in the final quarter of 2001 and recent data pointing to an improvement in activity early in 2002 should ensure that the Fed does not need to cut rates again this year. “The Fed’s first rate hike will depend on more concrete evidence that the recovery is firmly underway, which we think will materialize around mid-year.”

RBC notes that there were two other data releases in the U.S. today. The four-week moving average in jobless claims dropped by 3,000 as last week’s claims report was revised down sharply. “The claims data add to a number of other indicators suggesting the labour market may be close to a bottom. And, the Chicago Fed purchasing managers index rose in February to 53.1 from 45.1 in January. A reading above 50 is significant since it indicates that the manufacturing sector is expanding. An upturn in nation-wide industrial production signaling an end to the U.S. recession appears likely in the coming months.”

BMO Nesbitt concludes, “This was a strong [GDP] report, and should underpin corporate efforts to cut costs and boost profitability. The absence of inflation means that the Fed need not worry about being overly stimulative, especially with capital spending still declining.”