U.S. economic growth accelerated in the final months of 2006, as strong consumer spending and an increase in exports helped boost the economy despite a steep downturn in the residential housing market.
Commerce Department figures released this morning show that Gross Domestic Product increased 3.4 percent in 2006, faster than the year before and despite a sharp dip in growth last summer. Gross domestic product is a broad measure of the goods and services produced by U.S. workers and capital.
Growth in the last three months of the year was especially strong -- an annualized pace of 3.5 percent, led by a 4.4 percent jump in personal consumption and a 10 percent increase in exports.
The data, though preliminary, will figure into discussions held today at the Federal Reserve Bank about whether to raise its key interest rate. Analysts expect the bank to keep the rate steady at 5.25 percent, where it has been since June following several rate hikes.
The latest Commerce Department figures may quell speculation among analysts that the housing downturn would inevitably slow the economy as a whole and prompt the Fed to consider a rate decrease. With labor markets tight, incomes growing and economic growth on track, the bank will have little incentive to change course.
"The very good news is that the recession in housing continues to have a very limited impact on the rest of the economy," said Nariman Behravesh, chief economist with the Global Insight consulting firm. "The Fed has the economy where it wants it."
Some analysts say the housing downturn is in fact taking its toll -- and will continue to do so. Spending on housing, they note, fell at a nearly 20 percent annual rate in the last three months of the year compared with the year before, and subtracted more than a full percentage point from the estimates of growth for the period.
A run-up in business inventories also dragged down the economy's performance.
Though all of that was offset by strong consumer demand and exports, Ian Shepherdson, chief U.S. economist for the High Frequency Economics consulting firm, said he expects the Commerce Department to revise its growth estimates downward in coming weeks.
And he said that while Federal Reserve bankers will be "happy" that their current interest-rate decisions have kept inflation in check while sustaining growth, the first months of 2007 will be "much softer."