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Economy grew 2.8 pct. in Q4, but outlook is hazy

WASHINGTON -- The economy grew late last year at a pace that in normal times would suggest it's healthy.

But the 2.8 percent annualized growth rate in the October-December quarter -- the fastest pace since the spring of 2010 -- isn't being cheered by economists or investors. That's because growth would need to be much stronger to sharply reduce unemployment. And signs in the data point to slower growth ahead.

For all of last year, the economy grew just 1.7 percent. That was barely more than half the growth in 2010. The outlook for all 2012 is slightly better. The Federal Reserve estimates growth of roughly 2.5 percent for the year.

Though the economy has picked up and is far stronger than during the Great Recession, unemployment is still a high 8.5 percent. Many people remain reluctant to spend more or buy homes. Many employers are still hesitant to hire.

For the final three months of 2011, Americans spent more on vehicles, and companies restocked their shelves at a robust pace. But overall growth last quarter -- and for all of last year -- was held back by the sharpest cuts in annual government spending in four decades, the Commerce Department said Friday.

If anything, the factors that restrained growth near the end of 2011 are expected to exert a bigger drag on the economy this year: Cuts in military and other federal spending. A slower pace of company restocking. Weak or flat pay increases. Sluggish growth in consumer spending.

Stocks opened lower after the government reported the growth figures at 8:30 a.m. EST. The Dow Jones industrial average was down about 53 points in late-morning trading. Broader indexes were mixed.

"Overall, the pickup in growth doesn't look half as good when you realize that most of it was due to inventory accumulation," said Paul Ashworth, an economist at Capital Economics, who expects growth to slow to below 2 percent in the first three months of this year.

For all of last year, the economy grew just 1.7 percent. That was roughly half the growth in 2010 and the worst since the recession.

In the final three months of last year, consumer spending grew at a 2 percent annual rate. That's up modestly from the third quarter.

Much of the growth was powered by a 14.8 percent surge in sales of autos and other long-lasting manufactured goods.

Incomes, which have been weak all year because of high unemployment, grew at a modest 0.8 percent annual rate. That followed two straight quarters of declining incomes.

Consumer spending is important because it makes up 70 percent of economic activity.

Comments

BuzzG 2 years, 2 months ago

Don't believe it. The economy did not grow that fast. Again and again the Federal Gov't revises downward their growth figures after the fact. Why do they always seem to overstate growth and then later revise their figures downward? They're the government and seem to be answerable to no one.

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