U.S. Economy Quickens on Gains in Spending, Exports

By Bob Willis
(c) 2011 Bloomberg News
Friday, January 28, 2011; 10:32 AM

Jan. 28 (Bloomberg) -- 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 rate, Commerce Department figures showed today in Washington. The pace fell 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.

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 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, who correctly forecast the gain in GDP.

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.

Consumer sentiment was stronger forecast in January, according to a report from Thomson Reuters/University of Michigan. The group's confidence gauge decreased to 74.2 from 74.5 in December. It exceeded the 72.7 preliminary reading issued earlier this month.

Stocks fluctuate between gains, restrained by declines in shares of Ford Motors Co. and AT&T Inc. The Standard & Poor's 500 Index fell 0.2 percent to 1,297.41 at 10:13 a.m. in New York. Treasury securities were little changed, with yield on the benchmark 10-year note at 3.39 percent, the same as late yesterday.

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.

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