Economic Growth Takes Root

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The U.S. economy grew more than initially estimated during the fourth quarter, with consumer and business spending doing better than previously thought, calming fears that 2012 would witness a sharp slowdown.

Gross domestic product expanded at a 3 percent annual rate, the Commerce Department said on Wednesday in its second estimate — that’s the quickest pace since the second quarter of 2010. In January, the department reported a 2.8 percent annual pace. The economy grew at a 1.8 percent pace in the third quarter.

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Though a build-up in business inventories still accounted for much of the rise in output in the fourth quarter, recent revisions unveil an improved tone for first-quarter growth. Consumer spending, which accounts for roughly 70 percent of the U.S. economy, rose 2.1 percent in the last quarter, slightly more than the 2 percent originally estimated.

The Commerce Department also upwardly revised business investment in capital goods to a 2.8 percent pace, from 1.7 percent. However, the new figure is still weak compared to the recent trend, as outlays on home building were firmer than initially estimated, but investment on nonresidential structures was modestly weak.

Rebuilding of inventories added 1.88 percentage points to GDP in the last quarter, though the increase was revised down to $54.3 billion from $56.0 billion. The figures suggest more stock accumulation in this quarter, but not to quite the extent as in the last. Excluding inventories, the economy grew at a 1.1 percent rate, rather than a 0.8 percent rate. However, the new figure is still well below the 3.2 percent pace set in the previous three months.

Exports weren’t as strong as previously thought, but imports also showed little growth, narrowing the trade gap. Today’s report still showed moderate inflation pressures, though a price index for personal spending rose at a 1.2 percent annual rate instead of 0.7 percent. The core measure, which excludes volatile food and energy costs, rose at a 1.3 percent rate instead of 1.1 percent. The Federal Reserve would prefer to see this measure nearer its 2 percent inflation target.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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