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U.S. Economy Roars Back With 3.5% Growth

Stems fears that economy was in downward spiral.

After a mid-year soft patch, the U.S. economy roared back in the fourth quarter with a surprisingly strong 3.5% pace of expansion, the Commerce Department said Jan. 31.

The acceleration from a 2% pace in the third quarter will likely put to rest fears that the world's largest economy was in a downward spiral, analysts said. The report also showed price pressures easing somewhat, diminishing inflation fears.

The report on gross domestic product showed that the expansion for the full year 2006 was 3.4%, despite a severe slump in the real estate market.

This report, the first of three estimates on GDP in the quarter, was better than expected by Wall Street analysts, who on average were predicting a 3% growth pace in the October-December quarter.

The rebound was helped by strong consumer and defense spending, and an improvement in trade, with fewer imports and more exports. Consumer spending, which accounts for as much as two-thirds of the economy, rose 4.4% in the fourth quarter, compared to the 2.8% increase in the prior three-month period.

"The auto slump shaved 1.2% off the headline GDP growth. The housing construction slump also shaved an additional 1.2% off the GDP growth rate," said Stephen Gallagher, an economist at Societe Generale in New York. As a result, he said, "GDP ex-housing, ex-autos therefore registered a gain of 5.9%," suggesting "a generally healthy pace of activity, with strong consumption."

The latest rise is the fastest pace since the first quarter, when the economy recorded 5.6% annualized growth.

Copyright Agence France-Presse, 2007

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