Sun, Jan 29, 2012 - Page 5 News List

US GDP growth picks up speed

SLOWLY DOES IT:For all of last year, the US economy grew 1.7 percent, but economists do not expect the pace to pick up much amid international and domestic challenges

Reuters, Washington

The US economy grew at its fastest pace in one-and-a-half years in the fourth quarter last year, but a rebuilding of stocks by businesses and slower business spending warned of weaker growth early this year.

GDP expanded at a 2.8 percent annual rate, the US Department of Commerce said on Friday, a sharp acceleration from the 1.8 percent in the prior three months.

However, it was a touch below economists’ expectations in a Reuters poll for a 3 percent rate, and two-thirds of the increase was because of the build-up in business inventories.

Soft underlying demand and a sharp slowing in core inflation supported the US Federal Reserve’s decision this week to keep in place an ultra-easy monetary policy to nurse the recovery.

“The areas of strength are unlikely to be strong in the current quarter and the areas of weakness are more than likely to be weaker,” said Steve Blitz, a senior economist at ITG Investment Research in New York. “Frankly, I don’t think there is an awful lot the Fed can do about it.”

The economy got a temporary boost from the rebuilding of inventories, which logged the biggest increase since the third quarter of 2010.

Excluding inventories, the economy grew at a tepid 0.8 percent rate, a sharp step-down from the prior period’s 3.2 percent pace and a sign of weak domestic demand.

For all of last year, the economy grew just 1.7 percent and economists expect only a bit of quickening this year.

Sluggish growth could hurt US President Barack Obama’s chances of re-election in November and might lead the Fed to launch a further round of bond purchases to spur the recovery.

“Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability,” New York Federal Reserve President William Dudley told reporters.

US Treasury Secretary Timothy Geithner on Friday also gave a lukewarm assessment of economy’s prospects.

“We’re 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,” he said at the World Economic Forum in Davos, Switzerland.

The robust inventory accumulation in the fourth quarter — a US$56 billion build-up — suggests the recovery will lose a step at some point early this year when businesses throttle back.

However, economists said there was no sign businesses were uncomfortable yet with the amount of inventory they had on hand, suggesting they could add more in the current quarter.

Weak spots during the quarter included business investment spending, which advanced at just a 1.7 percent annual rate, the slowest since 2009.

A sharp drop in defense spending and still weak outlays at state and local authorities combined to yield a fifth straight quarterly contraction in government spending.

Though exports held up, an increase in imports left a trade gap that also chipped growth, and while home construction rose at the fastest pace since the second quarter of 2010, it was helped by unseasonably mild winter weather.

Consumer spending, which accounts for about 70 percent of US economic activity, also accelerated, stepping up to a 2 percent rate from the third quarter’s 1.7 percent.

However, it was largely driven by pent-up demand for cars. The Japanese earthquake and tsunami had disrupted supplies early last year, leaving showrooms bereft of popular models.

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