The U.S. economy accelerated in the fourth quarter of 2010, driven by the biggest gain in consumer spending in more than four years and rising exports.
Gross domestic product climbed at a 3.2 percent annual pace from October through December, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News and restrained by the biggest drag from inventories in two decades, Commerce Department figures showed today in Washington. Final sales, which includes all categories except stockpiles, rose at a 7.1 percent pace, the most since 1984.
“The recovery is getting stronger and will soon become self-sustaining as job growth picks up and the expansion becomes more balanced,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report.
General Electric Co. and Apple Inc. are among companies benefiting from the pickup in household spending that is forecast to extend into 2011 as tax cuts put more money in Americans’ pockets. Today’s report showed the Federal Reserve’s preferred measure of inflation climbed at the slowest pace on record, showing why policy makers this week said they plan to complete a second round of unconventional easing.
The volume of all goods and services produced rose to $13.38 trillion, for the first time surpassing the pre-recession peak reached in the fourth quarter of 2007.
2010 Gain
For all of 2010, the world’s largest economy expanded 2.9 percent, the most in five years, after shrinking 2.6 percent in 2009. The median forecast of 59 economists surveyed a year ago projected the U.S. would expand 2.7 percent.
The fourth-quarter GDP forecasts in the Bloomberg survey ranged from gains of 2.9 percent to 5.4 percent.
Household purchases, about 70 percent of the economy, rose at a 4.4 percent pace, the most since the first quarter of 2006.
The gain in consumer spending compared with a 4 percent median forecast in the Bloomberg survey and followed a 2.4 percent increase the prior quarter. Purchases added 3 percentage points to growth.
Stock-market gains, reduced debt and gradual improvement in the labor market are giving consumers the confidence to shop.
Retailers’ holiday sales jumped 5.5 percent for the best performance in five years, data from MasterCard Advisors’ SpendingPulse showed last month, as customers snapped up jewelry and clothing at stores like Macy’s Inc. and Tiffany & Co.
iPad Sales
Apple posted record quarterly sales as customers snapped up 7.33 million iPad tablet computers in the first holiday season for the device, the company said last week.
In addition to consumer spending, fourth-quarter growth got a lift from a narrowing trade deficit as exports climbed, which added 3.4 points to growth, the most since 1980.
Inventories last quarter were stocked at a $7.2 billion pace, down from a $121.4 billion rate in the third quarter. The slowdown subtracted 3.7 points from growth, the most since 1988. Leaner stockpiles may help set the stage for faster growth in the first half of this year.
As spending picks up, Ford Motor Co. is among companies planning to increase payrolls this year, pointing to gains in employment that may further underpin the recovery.
The Dearborn, Michigan-based automaker plans to hire more than 7,000 workers in the next two years, including engineers with expertise in battery-powered cars, Mark Truby, a company spokesman, said in an interview in Detroit on Jan. 10.
Record-Low Inflation
The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 0.4 percent annual pace, the smallest gain in data going back to 1959. The Fed’s longer term projection for inflation is a range of 1.6 percent to 2 percent.
The government’s extension last month of Bush-era tax cuts, renewal of emergency jobless benefits for the long-term unemployed and cuts to payroll taxes of 2 percentage points prompted economists such as Bruce Kasman at JPMorgan Chase & Co. in New York to raise forecasts for 2011.
The measures also let firms depreciate 100 percent of capital expenditures over the course of 2011. That will help sustain demand for equipment, which together with growing exports to China, Brazil and other fast-growing countries, has fueled the factory-led recovery that began in June 2009.
The Obama administration highlighted export deals with China worth $45 billion during talks with visiting President Hu Jintao last week, including purchases of General Electric Co. locomotives. Other agreements were announced with Caterpillar Inc., Cummins Inc., Westinghouse Electric Corp., Honeywell International Inc. and Alcoa Inc.
GE this month posted its third straight quarter of profit growth, beating analysts’ estimates, driven by a rebound in its finance unit, health-care and transportation divisions.
“The environment continues to improve,” Chief Executive Officer Jeffrey Immelt said on a Jan. 21 conference call. “The economy can get a little bit stronger every day.”
Today’s GDP estimate is the first of three for the quarter, with the other releases scheduled in February and March when more information becomes available.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz in Washington at cwellisz@bloomberg.net
