Skip to main content

U.S. Economy: Growth Accelerates on Consumer Spending

Friday, 28 January 2011 06:50 PM EST

The U.S. economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years.

Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed today in Washington, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News because of a slowdown in inventories. Excluding stockpiles, the economy rose at a 7.1 percent pace, the most since 1984.

“The consumer really drove the economy in the fourth quarter,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who accurately forecast the rate of growth. “The economy has moved beyond recovery to a stable state of growth.”

The dollar advanced on expectations the revival in demand will extend into this year, boosting sales at companies including General Electric Co. and Apple Inc. At the same time, the report showed the Federal Reserve’s preferred measure of inflation climbed at the slowest pace on record, bolstering forecasts the central bank won’t raise borrowing costs until 2012.

Stocks dropped on growing concern over the unrest in Egypt and as shares of Ford Motor Co. and Inc. retreated. The Standard & Poor’s 500 Index fell 1.8 percent to 1,276.34 at the 4 p.m. close in New York. The dollar advanced against the euro for the first time in nine days, strengthening to $1.3611 per euro from 1.3734 late yesterday.

New High

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 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.

“The environment continues to improve,” GE Chief Executive Officer Jeffrey Immelt said on a Jan. 21 conference call. “The economy can get a little bit stronger every day.”

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.

A separate report today showed consumer confidence fell less than expected in January, a signal the biggest part of the economy may extend the gains in spending.

The Thomson Reuters/University of Michigan final index of consumer sentiment decreased to 74.2 from 74.5 in December. The median forecast in a Bloomberg News survey called for a reading of 73.3, up from a preliminary figure of 72.7 issued earlier this month.

Spending Outlook

A 10 percent gain in the S&P 500 in the fourth quarter boosted household wealth and confidence. The government’s extension last month of Bush-era tax cuts, renewal of emergency jobless benefits and cuts to payroll taxes prompted economists such as Bruce Kasman at JPMorgan Chase & Co. in New York to raise forecasts for 2011.

Household purchases, about 70 percent of the economy, rose at a 4.4 percent pace last quarter, the most since the first three months of 2006. The increase added 3 percentage points to growth.

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.

Apple’s iPad

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.

As spending picks up, Ford is among companies planning to increase payrolls this year, pointing to gains in employment that may further underpin the recovery. The company today said fourth-quarter profit fell 79 percent as its European operations reported an unexpected loss.

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.

Still, Fed policy makers indicated this week that growth isn’t strong enough to reduce the jobless rate as fast as they would like, opting to maintain plans to pump $600 billion into the financial system through June. Unemployment has been stuck at 9.4 percent or higher since the recession ended in June 2009.

CEO’s Concern

“The terrible issues of the last two years have been somewhat contained,” Indra Nooyi, chief executive officer of PepsiCo. Inc, said in an interview with Bloomberg Television today at the World Economic Forum in Davos, Switzerland. “But GDP recovery alone doesn’t mean we have started to climb out of the recession. We have to address the unemployment.”

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 economy also got a lift from a narrowing trade deficit as exports climbed, which added 3.4 points to growth last quarter, the most since 1980.

The Obama administration highlighted export deals with China worth $45 billion during talks with visiting President Hu Jintao last week, including purchases of GE locomotives.

Tax measures allowing firms to depreciate 100 percent of capital expenditures over the course of 2011 will also help sustain demand for equipment, which has fueled the factory-led recovery that began in June 2009.

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.

“The mix of growth in the fourth quarter was very healthy, strong consumption and not much in inventories, and that implies production will likely be stronger than expected going forward,” said Chris Low, chief economist at FTN Financial in New York.

--With Shobhana Chandra in Washington and Erik Schatzker in Davos, Switzerland. Editors: Christopher Wellisz, Carlos Torres

To contact the reporter on this story: Bob Willis in Washington at [email protected]

To contact the editor responsible for this story: Christopher Wellisz in Washington at [email protected]

© Copyright 2024 Bloomberg News. All rights reserved.

The U.S. economy accelerated in the fourth quarter of 2010 as consumer spending climbed by the most in more than four years. Gross domestic product grew at a 3.2 percent annual rate, Commerce Department figures showed today in Washington, falling short of the 3.5 percent...
Friday, 28 January 2011 06:50 PM
Newsmax Media, Inc.

Sign up for Newsmax’s Daily Newsletter

Receive breaking news and original analysis - sent right to your inbox.

(Optional for Local News)
Privacy: We never share your email address.
Join the Newsmax Community
Read and Post Comments
Please review Community Guidelines before posting a comment.

Interest-Based Advertising | Do not sell or share my personal information

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
© Newsmax Media, Inc.
All Rights Reserved
Download the NewsmaxTV App
Get the NewsmaxTV App for iOS Get the NewsmaxTV App for Android Scan QR code to get the NewsmaxTV App
America's News Page
© Newsmax Media, Inc.
All Rights Reserved