Washington - The US economy grew at its fastest pace in one-and-a-half
years in the fourth quarter, but a strong rebuilding of stocks by
businesses and weak spending on capital goods hinted at slower growth in
US gross domestic product (GDP) expanded at a 2.8%
annual rate, the commerce department said on Friday, a sharp
acceleration from the 1.8% clip of the prior three months and the
quickest pace since the second quarter of 2010.
It was, however, a touch below economists' expectations for a 3.0% rate.
economy ended 2011 on a fairly positive note, but the composition of
growth in the last quarter is not favourable for growth early this
year," said Ryan Sweet, a senior economist at Moody's Analytics in West
Sweet made the comments before the report
was released. For the whole of 2011, the economy grew 1.7% after
expanding 3% the prior year.
Growth in the fourth quarter got a
temporary boost from the rebuilding of business inventories, which was
the fastest since the third quarter of 2010, after they declined in the
third quarter for the first time since late 2009.
increased $56.0bn, adding 1.94 percentage points to GDP growth.
Excluding inventories, the economy grew at a tepid 0.8% rate, a sharp
step-down from the prior period's 3.2% pace.
The robust stock accumulation suggests the recovery will lose a step in early 2012.
pointing to slower growth, business spending on capital goods was the
slowest since 2009, a sign the debt crisis in Europe was starting to
take its toll.
Expectations of soft growth led the Federal
Reserve on Wednesday to say it expected to keep interest rates at rock
bottom levels at least through late 2014.
Fed chairperson Ben
Bernanke said the central bank, which forecast growth this year in a
2.2% to 2.7% range, was mulling further asset purchases to speed up the
The Fed warned the economy still faced big risks, a suggestion the eurozone debt crisis could still hit hard.
Fed is attempting to shield the economy from a potentially more severe
recession in Europe," said Sweet. "Even though the economy improved last
quarter there are a number of headwinds and a lot of uncertainty
surrounding Europe, emerging markets and also US fiscal policy."
Treasury Secretary Timothy Geithner told the World Economic Forum in Davos the US economy still faced big challenges.
still repairing the damage done by the financial crisis. On top of that
we face a more challenging world. We have a lot of challenges ahead in
the United States," Geithner said.
Consumer spending, which
accounts for about 70% of US economic activity, stepped to a 2% rate
from the third-quarter 1.7% pace - largely driven by pent-up demand for
The Japanese earthquake and tsunami had disrupted supplies early in the year, leaving showrooms bereft of popular models.
Spending was also lifted by moderate inflation.
price index for personal spending rose at a 0.7% rate in the fourth
quarter, the slowest increase in one-and-a-half years, after rising at a
2.3% pace in the July-September period.
A core inflation
measure, which strips out food and energy costs, increased at a 1.1%
rate after rising 2.1% in the third quarter.
The increase last quarter was the smallest in a year and put this measure well below the Fed's 2% target.Sluggish income growth
income growth amid an 8.5% unemployment rate, which has prompted
households to tap savings and credit cards to fund their purchases, is
expected to weigh on consumers as the new year unfolds.
The saving rate rose at a 3.7% rate in the fourth quarter, slowing from the prior period's 3.9% pace.
the unemployment rate has improved, the jobs market remains a major
challenge. Part of the decline in the unemployment rate is due to the
fact tha ... people have stopped looking for work," said Adolfo
Laurenti, deputy chief economist at Mesirow Financial in Chicago.
high level of people out of the workforce and underemployed people
shows there isn't really much income generation to contribute to a
better spending pattern."
About 23.7 million Americans are either out of work or underemployed.
The shrinking labour force suggests the economy's long-term growth potential has slipped below 2.5%.
sustained growth pace of at least 3% would likely be needed to make
noticeable headway in absorbing the unemployed and those who have given
up the search for work.
Business spending grew at a sluggish 1.7% rate, pulling back sharply from the third quarter's 15.7% pace.
exports held up despite slowing global demand, an increase in imports
left a trade gap that sliced off 0.11 percentage point from GDP growth.
Despite an anticipated slowdown in growth this year, analysts do not believe the economy will fall into recession.
"The United States has enough momentum to offset the losses coming from Europe," said Laurenti.
mild winter weather helped home construction post its fastest growth
pace since the second quarter of 2010, with much of the increase going
to meet rising demand for rental apartments.
nonresidential structures fell. Government spending shrank for a fifth
consecutive quarter, reflecting a large decline in defence and still
weak state and local government outlays.