Economic Report of the President

easons for this correlation are discussed more fully in Chapter 2, ExpansionsPast and Present. Equipment investment spending grew quite fast during 2003and 2004, consistent with the rapid acceleration of nonfarm output growthfrom 2001 to 2003. The 3.5 percent growth projected for real GDP duringthe four quarters of 2005 is solid but below the growth rates of 2003 and2004. It follows, therefore, that the growth of investment is likely to be slowerin 2005 than in 2004. In addition, the termination of the special investmentexpensing provisions allowed under the Jobs and Growth Tax ReliefReconciliation Act of 2003 (JGTRRA) is likely to have advanced into 2004some investment spending that might have been planned for early 2005. Theend of this policy could limit investment growth in the first quarter of 2005.Business InventoriesBusinesses rebuilt inventories in 2004; inventory investment was solidlypositive during the year, after being slightly negative in 2003. Inventoryinvestment contributed an average of 0.35 percentage point to real GDPgrowth during the four quarters of 2004.Inventories appear to be lean relative to economy-wide sales and shipments,with the inventory-to-sales ratio for manufacturing and trade close to itshistoric low. Assessing just how lean these inventories are is difficult, however,Chapter 1 | 35