The economy expanded at a 3.0% annualized pace in the fourth quarter, based on today’s revised data, which was modestly better than the previous estimate of 2.8%. Contributions to growth were still predominantly from inventory build-up and improvement in personal consumption. The drag created by cuts in government spending picked up, largely driven by cuts in defense spending.
The economy was widely believed to have accelerated in the final quarter of the year, and today’s data provides further evidence that, in fact, did occur. The result was the strongest quarter of growth in 2011, and adds to the string of positive surprises in economic indicators over the last several months.
Consumer spending accelerated moderately during the quarter after a mid-year lull. That increase was fueled by a reduction in savings and increase in consumer borrowing. The sustainability of a more robust pace of spending remains tenuous as long as personal income gains remain lackluster.
Since the beginning of the year, consumer confidence has strengthened, as recent gains in the jobs market have sparked a bit of optimism about the outlook for the economy.
The mild winter across the U.S. has also benefited the economy as the traditional lull from cold weather “hibernation” has been alleviated.
The improvement in the economy in recent months has been encouraging, although the path ahead will require the economy to push forward in the face of a global economic slowdown.
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