U.S. Economy Picked up Modestly in 4th Quarter

Jan. 27, 2012
First estimate for the October-to-December period showed hesitant consumer buying and continued spending cuts by federal and local governments.

The U.S. economy picked up speed in the fourth quarter, fresh data showed Friday, but it appeared to be still struggling to click into second gear as investment and consumer spending remained weak.

The economy grew at an annual clip of 2.8% in the quarter, according to the Commerce Department, a pickup from the third quarter's 1.8% and the best pace of the year.

But it fell below average forecasts of 3.2% and was hardly enough to give a boost to President Barack Obama, whose record trying to get the economy moving is under scrutiny as he faces a stiff reelection challenge this year.

"Muddling through is the best term that can be applied to the current economic environment, even though the risks of a downturn have been reduced," Steven Ricchiuto of Mizuho Securities said.

"By the same token, the data shows that there is no real risk of an upside surprise either."

The first estimate for the October-December period showed that hesitant consumer buying and continued spending cuts by federal and local governments were still holding back the country's productive potential.

A $56 billion bounce in private investment in inventories, which is frequently volatile from quarter to quarter, anchored the pickup.

That accounted for 1.9 percentage points of the 2.8% expansion pace, the figures showed, with most of it from the auto industry.

Meanwhile, personal consumption during the normally buoyant holiday shopping period grew only 2% from the previous quarter, far slower than the 3.6% pace of a year earlier. Spending on services was virtually flat.

From another view, final sales of domestic products grew only 0.8% in the quarter, compared to 3.2% in the July-September period.

Spending by authorities also fell sharply from the previous quarter, led by a 12.5% drop in defense outlays.

The White House, which is hoping for a surge in growth that would bring down unemployment and boost President Barack Obama's re-election odds in November, called the number "encouraging" but not enough.

"Today's report shows that the economy posted its 10th straight quarter of positive growth," said Alan Krueger, chairman of Obama's Council of Economic Advisers.

However, he added, "faster growth is needed to replace the jobs lost in the recent downturn and to reduce long-term unemployment.

Republicans vying to face down Obama in the November vote have uniformly denounced his handling of the economy since the deep 2008-2009 recession, blaming him for losing jobs and weakening industry.

Obama however has blamed Republicans for stifling the recovery by refusing to support his stimulus proposals.

The growth report came two days after the Federal Reserve cut its forecast for gross domestic product (GDP) growth this year to a range of 2.2 % to 2.7%.

Economists saw the new data as more glass-half-full than the contrary.

"Any disappointment should be mitigated by one plain truth -- [the figures] are the best evidence yet that the American economic giant is stirring from its slumber," said Marcus Bullus at MB Capital.

Ian Shepherdson of High Frequency Economics blamed some of the slower consumer spending on a lower level of fuel consumption during the uncommonly warm early-winter weather during the period.

He predicted a better first quarter of 2012, with consumption firming and the government acting as less of a drag.

Patrick O'Hare at Briefing Research was less confident.

"The concern for the market... is that the contribution from inventories will not continue at the fourth-quarter pace in the first quarter," he said.

"Accordingly, there is a bit of a sting in the thought that first quarter GDP could fall back to the 'new normal' zone of 2% or less."

Analysts also noted that first estimates for quarterly growth are often considerably revised as more data comes in.

Copyright Agence France-Presse, 2012

Popular Sponsored Recommendations

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!