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January 30, 2010

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US economy surprises with faster growth

THE United States economy grew faster than expected at the end of last year, though the engine of that growth -- companies replenishing stockpiles -- is likely to weaken as consumers keep a lid on spending.

The 5.7 percent annual growth rate in the fourth quarter of last year was the fastest pace since 2003. The US Commerce Department report yesterday is the strongest evidence to date that the worst recession since the 1930s ended last year, though an academic panel that dates recessions has yet to declare an end to it.

The two straight quarters of growth followed a record four quarters of decline. Still, the growth in the fourth quarter was fueled by firms refilling depleted stockpiles, a trend that will eventually fade.

Growth exceeded expectations mainly because business spending on equipment and software jumped 13.3 percent -- much more than forecast. It's the second quarter in a row that business spending has increased, after six quarters of decline.

The report provided an upbeat end to an otherwise dismal year: The US economy declined 2.4 percent in 2009, the largest drop since 1946. That's the first annual decline since 1991.

Still, economists expect growth to slow this year as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's gross domestic product will grow about 2.5 to 3 percent in the current quarter and about 2.5 percent or below this year.

That won't be fast enough to reduce the unemployment rate, now 10 percent. Most analysts expect it to keep rising for several months and remain close to 10 percent through the end of the year.

High unemployment is likely to keep consumers cautious about spending. Without strong consumer spending, economists worry the recovery could falter.

"That's why there's so much hand-wringing right now," said Brian Bethune, chief US financial economist for IHS Global Insight. "Can the economy really sustain this? That's the big question mark sitting out there."

Still, it's a "surprisingly good report," Bethune said.


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