US shrugs off slowdown fears, grows 3.5% in Q4
The US economy roared back in the fourth quarter from a mid-year soft patch with a surprisingly strong 3.5% pace of expansion, the government said on Wednesday.
By Agencies |
WASHINGTON: The US economy roared back in the fourth quarter from a mid-year soft patch with a surprisingly strong 3.5% pace of expansion, the government said on Wednesday. The acceleration from a 2% pace in the third quarter will likely put to rest fears that the world���s largest economy was in a downward spiral, analysts said.
But the report also showed price pressures easing somewhat, diminishing inflation fears. The Commerce Department report on gross domestic product showed that the expansion for the full year 2006 was 3.4%, despite a severe slump in the real estate market.
The report, the first of three estimates on GDP in the quarter, was better than expected by Wall Street analysts, who on average were predicting a 3% growth pace in the October-December quarter. ���This is a great report,��� said Sal Guatieri, senior economist at BMO Financial Group.
���This is the best of all worlds: You have strong economic growth, yet subdued wage and price pressures.��� As a result of this and other strong data, Guatieri added, ���the recession bears have gone into hibernation.��� The report came as the Federal Reserve was holding a two-day meeting to assess economic prospects and decide on monetary policy, with the federal funds rate likely to be held at 5.25%.
The surprise acceleration has prompted many analysts to scratch their forecasts for a rate cut to stimulate economic growth. Some argue that a rate hike may be needed soon to keep inflation in check, but Guatieri said this does not appear imminent.
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���Do we have to fear an (economic) overheating?��� he said. ���No, because employment costs remain subdued.���The rebound marked an end to a soft patch in mid-2006, and was helped by strong consumer and defence spending, and an improvement in trade, with fewer imports and more exports.
The latest rise is the fastest pace since the first quarter, when the economy recorded 5.6% annualised growth. Consumer spending, which accounts for as much as two-thirds of the economy, rose 4.4% in the fourth quarter, compared to the 2.8 % increase in the prior three-month period.
Final sales, a preferred gauge of economists because it measures economic activity less inventory adjustments, rose 4.2% in the last three months of the year, sharper than the 1.9% rise in the third quarter.
The growth was even more surprising because of the steep decline in real estate. The report showed real residential fixed investment plunged 19.2% in the fourth quarter after a decrease of 18.7% in the third, the result of a slide in housing starts.
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Stephen Gallagher, an economist at Societe Generale in New York, said the report paints a healthy picture of the economy going forward, because the expansion came despite weakness in the auto and housing sectors.
���The auto slump shaved 1.2% off the headline GDP growth. The housing construction slump also shaved an additional 1.2% off the GDP growth rate,��� Gallagher said.
As a result, he said, ���GDP ex-housing, ex-autos therefore registered a gain of 5.9 percent,��� suggesting ���a generally healthy pace of activity, with strong consumption,��� and an overall ���favourable picture for the US economy.���
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