Spending gives lift to US economy
By Jeannine Aversa |
January 29, 2011, Saturday
|
Print Edition
Print Edition
THE United States economy gained strength at the end of last year as Americans spent at the fastest pace in four years and US companies sold more overseas.
The growth is boosting hopes for a stronger 2011. But it remains too weak to ease high unemployment.
The US Commerce Department reported yesterday that growth rose to an annual rate of 3.2 percent in the October-December quarter. That's better than the 2.6 percent growth in the previous quarter.
And it was the best quarterly showing since the start of last year.
The economy has now consistently picked up speed since hitting a rough path in the spring.
For all of last year, the economy grew 2.9 percent, the most since 2005. It was an improvement from 2009 when the economy suffered its worst decline in more than 60 years.
But that won't be strong enough growth to drive down unemployment, which was 9.4 percent in December. It takes about 3 percent growth just to create enough jobs to keep pace with the population increase. By some estimates, growth would have to be closer to 5 percent for a full year to drive down the unemployment rate by 1 percentage point.
Increased consumer spending was a key reason the economy grew more strongly. Americans boosted their spending at a 4.4 percent pace, the most since 2006. They spent more on furnishings, appliances, cars and clothes.
That's largely why economists are more optimistic about the economy's performance this year. Consumer spending accounts for roughly 70 percent of overall economic activity.
After the recession ended in June 2009, consumers kept spending cautiously. At the end of last year, though, that began to change.
Looking ahead, economists expect consumer spending will rise 3.2 percent or more for all of 2011. That would be almost double last year's anemic rate.
A cut in workers' Social Security taxes, higher stock prices and wage gains from a slowly healing jobs market should make people feel better about spending, economists said.
Economists are hopeful that consumers can power the economy, especially as government stimulus fades and businesses spend less replenishing their stockpiles.
Companies spent just US$7.2 billion on inventories in the October-December quarter, compared with a US$121.4 billion increase in the July-September quarter. Inventories investment, which had been an important source of growth since the recession ended, subtracted from economic growth for the first time since the second quarter of 2009.
Stronger sales of US exports to foreign buyers helped fuel growth at the end of last year, but the higher sales were eclipsed by the slowdown in inventory rebuilding.
Exports grew 10 percent, up from a 5.8 percent pace in the July-September quarter. Economists expected sales of exports to continue to provide support for the economy this year.
The growth is boosting hopes for a stronger 2011. But it remains too weak to ease high unemployment.
The US Commerce Department reported yesterday that growth rose to an annual rate of 3.2 percent in the October-December quarter. That's better than the 2.6 percent growth in the previous quarter.
And it was the best quarterly showing since the start of last year.
The economy has now consistently picked up speed since hitting a rough path in the spring.
For all of last year, the economy grew 2.9 percent, the most since 2005. It was an improvement from 2009 when the economy suffered its worst decline in more than 60 years.
But that won't be strong enough growth to drive down unemployment, which was 9.4 percent in December. It takes about 3 percent growth just to create enough jobs to keep pace with the population increase. By some estimates, growth would have to be closer to 5 percent for a full year to drive down the unemployment rate by 1 percentage point.
Increased consumer spending was a key reason the economy grew more strongly. Americans boosted their spending at a 4.4 percent pace, the most since 2006. They spent more on furnishings, appliances, cars and clothes.
That's largely why economists are more optimistic about the economy's performance this year. Consumer spending accounts for roughly 70 percent of overall economic activity.
After the recession ended in June 2009, consumers kept spending cautiously. At the end of last year, though, that began to change.
Looking ahead, economists expect consumer spending will rise 3.2 percent or more for all of 2011. That would be almost double last year's anemic rate.
A cut in workers' Social Security taxes, higher stock prices and wage gains from a slowly healing jobs market should make people feel better about spending, economists said.
Economists are hopeful that consumers can power the economy, especially as government stimulus fades and businesses spend less replenishing their stockpiles.
Companies spent just US$7.2 billion on inventories in the October-December quarter, compared with a US$121.4 billion increase in the July-September quarter. Inventories investment, which had been an important source of growth since the recession ended, subtracted from economic growth for the first time since the second quarter of 2009.
Stronger sales of US exports to foreign buyers helped fuel growth at the end of last year, but the higher sales were eclipsed by the slowdown in inventory rebuilding.
Exports grew 10 percent, up from a 5.8 percent pace in the July-September quarter. Economists expected sales of exports to continue to provide support for the economy this year.
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