U.S. GDP Growth Accelerates
U.S. economic growth accelerated in the final three months of 2010 as Americans spent more and businesses drew down inventories, suggesting the recovery may pick up speed this year.
Gross domestic product, the broadest measure of all the goods and services produced, rose at an inflation-adjusted annual rate of 3.2% in the fourth quarter, the Commerce Department said Friday in its first estimate of the measure.
The latest increase returns total output of goods and services to the level hit before the deep recession.
One particularly encouraging detail in the report: Final sales -- GDP minus the change in business inventories -- grew at a whopping 7.1% annual rate, an encouraging sign of strong underlying demand in the U.S. economy
GDP grew by 2.6% in the third quarter of last year, by 1.7% in the second and by 3.7% in the first of last year. Economists polled by Dow Jones Newswires were expecting GDP to rise by 3.5% in the last quarter of 2010.
Consumer spending, accounting for about 70% of demand in the U.S. economy, rose at a 4.4% rate in the fourth quarter. That's the fastest pace since the start of 2006 and double the average rise in spending in the previous three quarters of 2010.
The U.S. economy has been slow to recover from the deep recession that ended in June 2009. Spending has grown only modestly as Americans struggled to find jobs, obtain higher income, pay down their mortgages and get credit. But the holiday season at the end of last year saw some shoppers return, lured by continued low prices and a small improvement in the jobs market.
For the first time in 2010, the economy also benefited from a trade surplus in October to December. Net exports, or exports from the U.S. minus imports into the country, contributed 3.44 percentage points to growth. In July through September, the trade gap subtracted 1.7 percentage points from GDP.
Another sector that added to growth was nonresidential fixed investment. Lower company inventories and a downturn in government spending, meanwhile, weighed on GDP.
Spending on durable goods like cars and furniture jumped by 21.6%, while spending for nondurable goods like food and clothing was up by 5.0%. Spending on services such as transportation and health care, meantime, increased 1.7%.
Despite the recent rise in stocks, Americans' wealth still suffers from persistently low home prices. The unemployment rate, though improving, remains above 9.0%. The economy must grow by at least 3.0% to reduce the jobless rate, according to economists.
Nevertheless, the rise in consumer spending makes it more likely that the recovery will sustain itself without further help from the government and the boost it got earlier in the recovery from companies building up inventories.
The outlook for spending has also improved slightly, helped by tax cuts approved by Congress at the end of last year and the Federal Reserve's actions to keep borrowing rates low. The Conference Board's consumer confidence index rose in January to its highest level since May 2010, right before the U.S. recovery hit a stumbling block amid Europe's debt crisis.
The Fed this week said it will continue to buy government bonds to try and boost the economy via low rates and by driving investors towards riskier assets like stocks. The central bank also shrugged off a recent surge in global commodity prices, saying underlying inflation remains subdued.
The GDP report Friday showed inflation is still tame. The Fed's preferred gauge, the price index for personal consumption expenditures, or PCE, excluding volatile food and energy items, rose an annualized 0.4% in the fourth quarter. That's down from the third quarter's 0.5% increase.
The overall price index for PCE rose by 1.8% in the fourth quarter on the back of higher commodity prices, after a 0.8% rise in the third quarter.
The Commerce Department's first GDP often gets revised substantially. A second GDP estimate, based on more complete data, will be released Feb. 25.
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