WASHINGTON (AP) — The U.S. economy grew at a 3.2 percent
annual rate in the October-December quarter on the strength of the
strongest consumer spending in three years, an encouraging sign for
2014.
The fourth-quarter increase followed a 4.1 percent growth
rate in the July-September quarter, when the economy benefited from a
buildup in business stockpiles.
For 2013 as a whole, the economy
grew a tepid 1.9 percent, weaker than the 2.8 percent increase in 2012,
the Commerce Department said Thursday. Growth was held back last year by
higher taxes and federal spending cuts.
With that drag
diminished, many economists think growth could top 3 percent in 2014.
That would be the best performance since the recession ended in
mid-2009.
The expansion in the final three months of 2013 was
fueled by a 3.3 percent growth rate in consumer spending, a significant
acceleration from 2 percent spending growth in the third quarter. It was
the best spending pace since the fourth quarter of 2010. Consumer
spending is particularly important because it accounts for about 70
percent of the economy.
Government spending fell at a 4.9 percent
rate last quarter. State and local government activity rose at a scant
0.5 percent rate, but federal government spending tumbled at a 12.6
percent rate. The 16-day partial government shutdown in October cut
fourth-quarter growth by about 0.3 percentage point, the government
said.
The strength in consumer spending reflected gains in
purchases of durable goods such as autos and nondurable goods such as
clothing. Spending on services also rose strongly.
Businesses
invested in more equipment last quarter. There was also strength from a
shrinking trade deficit. But housing construction declined.
Paul
Ashworth, chief U.S. economist at Capital Economics, said he thinks
growth will slow to an annual rate of around 2.5 percent in the first
half of this year, in part because businesses will slow their
stockpiling. But Ashworth said even this reduced growth rate should help
further lower the unemployment rate and ensure that the Federal Reserve
will keep reducing its stimulus this year. The unemployment rate is now
6.7 percent.
On Wednesday, the Fed said it will push ahead with a
plan to shrink its bond-buying program because of the strengthening
U.S. economy. It’s doing so even though the prospect of reduced Fed
stimulus and higher U.S. interest rates has rattled global markets.
Jennifer
Lee, senior economist at BMO Capital Markets, said the strength in the
October-December quarter supported her view that the economy would grow
at an annual rate of 2.9 percent this year.
The 3.2 percent
estimated growth rate for the economy last quarter was the government’s
first of three projections of
gross domestic product for the
October-December quarter. The GDP measures the economy’s total output of
goods and services.
This year, economists think the economy will
get a lift from continued gains in hiring. Further steady job growth
would give more households money to spend and help lift consumer
spending, which accounts for about 70 percent of economic activity.
In
addition, U.S. manufacturers are expected to get a lift from rising
global demand. And at home, housing construction and auto sales, which
showed strength last year, are expected to register further gains in
2014.
Because of the stronger growth prospects, the Federal
Reserve said Wednesday that it would continue to reduce the monthly bond
purchases it’s been making to try to boost the economy.
The Fed
bought $85 billion a month in bonds last year to try to keep long-term
interest rates low. It announced an initial $10 billion reduction in
December. And after its meeting Wednesday, it announced another $10
billion cut. That will put its monthly purchases at $65 billion.
Many
analysts think the Fed will keep paring its support at each of its
meetings this year until it eliminates new bond purchases entirely in
December.
In making the announcement, the Fed cited an improving economy, including more strength in consumer and
business spending.
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