The US economy gathered speed in the fourth quarter to regain its pre-recession peak with a big gain in consumer spending and strong exports, removing doubts about the recovery’s sustainability.
The economy grew at a 3.2 percent annual rate in the final three months of last year, after expanding at a 2.6 percent pace in the third quarter, the US Department of Commerce said on Friday.
Wall Street had looked for a 3.5 percent gain, but the composition of growth gave the report a surprisingly robust tenor: strong consumer and business spending, and a hint at a need for businesses to build up inventories.
Still, it was not been strong enough to knock the US Federal Reserve off track from efforts to support recovery.
“The numbers look very good. The economy has got some real good momentum heading into the new year,” said Joseph LaVorgna, chief US economist at Deutsche Bank Securities in New York.
He said that growth could easily top 4 percent this year, if job creation finally picks up.
“If the labor market does not come through, the economy is not going to get enough lift,” he said.
For the whole of last year, US GDP grew 2.9 percent, the biggest gain since 2005, but an advance too weak to whittle away at the unemployment rate, which ended the year at 9.4 percent. Output contracted 2.6 percent in 2009.
“I think there is much more confidence now that we’ve got a sustainable expansion,” US Treasury Secretary Timothy Geithner said at the World Economic Forum in Davos, Switzerland, before the data was released.
However, he cautioned: “It is not a boom. It’s not going to offer the prospect of a rapid decline in the unemployment rate.”
During the fourth quarter, consumer spending grew at a 4.4 percent rate, the fastest since the first three months of 2006. Consumer spending, which accounts for more than two-thirds of US economic activity, added about 3 percentage points to GDP growth, its largest contribution in more than four years.
Consumers are growing more confident. The Thomson Reuters/University of Michigan’s consumer sentiment index rose to 74.2 from 72.7 early this month, a separate report showed.
Another pillar of growth was exports. An 8.5 percent jump in exports combined with a 13.6 percent plunge in imports to add 3.44 percentage points to GDP growth, the first contribution from trade in a year and the biggest since 1980.
However, economists said the boost from trade was likely to be fleeting as a need by businesses to rebuild stocks would lead to a pick-up in imports.
In the fourth quarter, inventory growth slowed sharply to subtract from GDP growth for the first time since the second quarter of 2009. Economists said businesses probably had underestimated the strength of demand and would now need to restock, which should force further gains in production.
If businesses had not put the brakes on inventory growth, the economy would have expanded at a 7.1 percent clip. That would mark the biggest increase in domestic and foreign demand in more than 26 years. In contrast, domestic purchases grew at a much more moderate 3.4 percent rate.
The report showed inflation quickening on a surge in food and gasoline costs, but a “core” price index closely watched by the Fed advanced at a record low 0.4 percent pace, suggesting broad price pressures are not building.
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