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Economy grew 3.2 percent in fourth quarter, fueling hopes for faster recovery Economy grew 3.2 percent in fourth quarter, fueling hopes for faster recovery
(about 4 hours later)
The U.S. economy grew at a healthy 3.2 percent rate in the final months of 2013, according to new government data released Thursday morning, providing crucial momentum for the recovery that analysts hope will carry through this year.The U.S. economy grew at a healthy 3.2 percent rate in the final months of 2013, according to new government data released Thursday morning, providing crucial momentum for the recovery that analysts hope will carry through this year.
The increase in the nation’s gross domestic product is particularly encouraging because it comes after a strong showing during the third quarter that some worried could not be sustained. But the back-to-back gains are likely to shore up confidence that the recovery will not slip away again. The increase in the nation’s gross domestic product is particularly encouraging because it comes after a strong showing during the third quarter that some worried could not be sustained. But the back-to-back gains are likely to shore up confidence that the recovery will not slip again.
Consumer spending picked up 3.3 percent during the fourth quarter, government data show, despite disappointing holiday results from retailers. Exports also boosted growth with an increase of 11.4 percent, more than double the rise in the previous quarter. “The economy is really starting to move in the right direction,” said Tim Hopper, chief economist at TIAA-CREF.
However, the federal government remained a significant drag on the economy. Spending sank 12.6 percent during the fourth quarter. The drop subtracted nearly a percentage point from GDP. Meanwhile, spending slowed in state and local jurisdictions to a meager 0.5 percent. The report was greeted with a sigh of relief on Wall Street as the major indexes rallied after several volatile days of big losses caused by anxiety over the health of developing countries. By noon, the blue-chip Dow Jones Industrial Average was up more than 0.8 percent. The broader Standard & Poor’s 500 rose more than 1 percent, while the tech-heavy Nasdaq soared nearly 2 percent.
Thursday’s solid data should help dispel fears that the recovery is running on fumes. Recent reports showing a sharp slowdown in hiring coupled with disappointing numbers in new home sales and manufacturing have begun to raise questions about the direction of the economy. Meanwhile, investors have been on edge in the face of political turmoil in emerging markets that has spooked the markets. Consumers led the way during the fourth quarter, as government data showed spending picked up 3.3 percent, despite disappointing holiday results from retailers. Driving the increase was spending on services, particularly restaurants and travel. Exports also jumped 11.4 percent in the fourth quarter, according to the data, almost three times the level of growth in the previous quarter. Business investment rose 3.8 percent.
Those factors were not enough to deter the Fed from continuing to scale back the amount of money it has been pumping into the economy. The central bank said Wednesday that it will reduce its purchases of bonds from $75 billion this month to $65 billion in February, noting that “economic activity picked up” in recent quarters. The Fed said it was also was encouraged by faster growth in household spending and business investment. White House chief economist Jason Furman noted that the private sector grew nearly 4 percent during the fourth quarter compared with a year ago, the fastest pace in a decade. But the actual rate of growth in 2013 was only half that amount, according to government data, weighed down by steep cuts in federal spending. In the fourth quarter alone, it dropped 12.6 percent.
The government’s drag on growth is expected to fade this year, however. Lawmakers have averted the threat of another government shutdown and reached a budget deal that reverses some of the most draconian spending cuts, and no major tax increases are on deck.
Thursday’s solid GDP numbers overshadowed other data showing a slowdown in pending home sales in December and an uptick in applications for jobless benefits last week. Still, some economists worried that the labor market is too weak to support such strong spending by consumers. Sterne Agee chief economist Lindsey Piegza said she believes that growth this year could remain tepid.
“It’s all predicated on job and income growth, which does not support the level of spending we’re seeing,” she said. “I’m very concerned that businesses are going to pull back further at the start of the year.”
Markets have been on edge over concerns that the global recovery is running on fumes. The sharp slowdown in hiring coupled with disappointing numbers in new home sales and manufacturing have stirred questions about the direction of the economy. Meanwhile, political turmoil in emerging markets has spooked investors.
Those factors were not enough to deter the Fed this week from continuing to scale back the amount of money it has been pumping into the economy. The central bank said Wednesday that it will reduce its purchases of bonds from $75 billion this month to $65 billion in February, noting that “economic activity picked up” in recent quarters. The Fed said it was also was encouraged by faster growth in household spending and business investment.
The government also reported that GDP for the entire year grew by 1.9 percent. That is slower than 2012’s pace of 2.8 percent and partly a reflection of significant government spending cuts. Economists generally consider a 3 percent increase to be robust, and that bar has not been met since 2005.The government also reported that GDP for the entire year grew by 1.9 percent. That is slower than 2012’s pace of 2.8 percent and partly a reflection of significant government spending cuts. Economists generally consider a 3 percent increase to be robust, and that bar has not been met since 2005.