Economic growth: Gross domestic product rose at 3.2 percent rate by end of 2010

Jan. 28 (Bloomberg) -- John Herrmann, senior fixed-income strategist at State Street Global Markets, discusses U.S. fourth-quarter gross domestic product released today and the outlook for the economy. Gross domestic product climbed at a 3.2 percent annual pace from October through December, falling short of the 3.5 percent median forecast of 85 economists surveyed by Bloomberg News, Commerce Department figures showed. Herrmann speaks with Betty Liu and Michael McKee on Bloomberg Television's "In the Loop." (Source: Bloomberg)
Washington Post Staff Writer
Friday, January 28, 2011; 8:04 PM

The U.S. economic recovery accelerated in the final months of 2010, with the private sector gaining enough strength to supplant government spending as the main engine of growth.

The latest reading on gross domestic product, released Friday, shows that economic expansion is still too slow to bring down unemployment by much. But the recovery is becoming deeper, broader and more durable. The 3.2 percent rate of increase in fourth-quarter GDP, the broadest measure of economic activity, was up from 2.6 percent in the previous quarter.

The most-positive news from Friday's report is that economic growth seems to be putting down roots. In late 2009 and early 2010, the gains in GDP were driven by government spending to stimulate the economy and outlays by business to rebuild depleted inventories - both flash-in-the-pan factors.

By contrast, growth last quarter was driven by American consumers, who spent more; businesses, which invested more; and a much improved balance of trade with other nations. If businesses had not reduced their levels of inventories last quarter, GDP growth would have been more than twice as high. Final sales, which exclude inventory adjustments, rose at a 7.1 percent rate, the strongest showing since 1984.

"It's encouraging that growth is continuing," said David Wyss, chief economist at Standard & Poor's, "and it seems to be becoming more sustainable and more organic growth rather than being forced by the government."

President Obama's chief economist, Austan Goolsbee, called the sixth straight quarter of growth "a further sign that the economy continues to gain momentum." But Goolsbee added that "we have a lot more work to do to accelerate growth so that we are creating the jobs we need."

House Majority Leader Eric Cantor (R-Va.) attributed some of the improved growth to Republican victories in November elections.

"This uptick is no doubt due in part to the certainty that Washington has given the private sector through the recent tax deal and the newly elected House Republican Majority who have pledged to rein in the size and scope of our federal government," Cantor said Friday in his blog. The quarter ended Dec. 31, several days before the new Congress took office.

While much of the congressional debate in the past two years has focused on the administration's efforts to stimulate the economy through government spending, Democrats and Republicans are now debating whether to cut that spending and by how much.

The new GDP figures could provide ammunition to both sides. Republicans can point to the growing role of the private sector to argue that government spending is of limited significance in fostering the recovery. Democrats, for their part, can note that the accelerating growth has made little dent in unemployment and that more needs to be done to address joblessness.

During the second and third quarters of 2010, spending by the federal government increased at about a 9 percent rate. By contrast, in the final quarter, October through December, the federal government's expenditures fell at a 0.2 percent annual rate. State and local governments cut back even more aggressively, at a 0.9 percent rate.

So if there was to be growth in the fourth quarter, it would need to come from the private sector - and it did.

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