January 29, 2011 in Business

Private sector drives GDP growth

U.S. economy increased 3.2 percent in last quarter
Don Lee Tribune Washington bureau
 

WASHINGTON – The American economy registered moderately stronger growth in the final three months of last year, buoyed by rising exports and the biggest increase in consumer spending in four years, the Commerce Department said Friday.

Economists said the private sector’s bigger role in driving growth suggests that the 18-month-old recovery will begin this year with stronger momentum, even as the lingering effects of the devastating recession continue to cast a shadow over the economy and especially over employment.

“What’s clear from the data is that the economy is recovering and that the recovery is sustainable, but it’s not growing in a way that will create a lot of jobs,” said Mark Vitner, a senior economist at Wells Fargo in Charlotte, N.C.

The Commerce Department said the nation’s gross domestic product – the sum of all goods and services produced inside U.S. borders – expanded at an inflation-adjusted annual rate of 3.2 percent in the fourth quarter of 2010. That was an improvement over the 2.6 percent GDP growth in the third quarter.

Ordinarily, 3.2 percent would be seen as a solid number. But at the current early stage of the recovery, following a recession that eliminated more than 8 million jobs, “it’s subpar,” said California State University economist Sung Won Sohn.

For all of 2010, the U.S. economy grew by 2.9 percent. By contrast, after the deep recession of the early ’80s, GDP in 1984 jumped by 7.2 percent.

Still, economists were heartened by the latest data because they showed a very sharp increase in the demand for American-produced goods and services. Whereas government stimulus and companies ramping up depleted inventories propelled the recovery earlier, private-sector spending is now taking the lead.

Consumer spending rose 4.4 percent in the fourth quarter, about double the pace of the prior three quarters.

The resurgence reflected the best holiday retail sales since 2006 and strong gains in the stock market, which helped bolster confidence and purchases of big-ticket goods.

But that heady pace is not likely to last. To support increased consumption, Americans dipped into their savings late last year. The personal saving rate dropped to 5.4 percent in the fourth quarter from 5.9 percent in the third quarter.

With the housing market remaining depressed and many families trying to cut back after the borrowing binge of the past decade, consumer spending growth is expected to slow down to a rate closer to 3 percent.

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