THE US economy grew at its fastest pace in 1½ years in the fourth quarter, but a rebuilding of stocks by businesses and slower business spending warned of weaker growth in early 2012.
Gross domestic product expanded at a 2.8 per cent on an annual rate, the Commerce Department said, a sharp acceleration from the 1.8 per cent in the prior three months.
It was, however, a touch below economists expectations in a Reuters poll for a 3 per cent rate, and two-thirds of the increase was due to the build-up in business inventories.
Soft underlying demand and a sharp slowing in core inflation supported the Federal Reserve’s decision this week to keep in place an ultra easy monetary policy to nurse the recovery.
“The areas of strength are unlikely to be strong in the current quarter and the areas of weakness are more than likely to be weaker,” said Steve Blitz, a senior economist at ITG Investment Research. “Frankly, I don’t think there is an awful lot the Fed can do about it.”
The data helped push US stocks slightly lower, while longer-dated Treasury debt prices slipped. The dollar fell against a basket of currencies.
The economy got a temporary boost from the rebuilding of inventories, which logged the biggest increase since the third quarter of 2010. Excluding inventories, the economy grew at a tepid 0.8 per cent rate, a sharp step-down from the prior period’s 3.2 per cent pace and a sign of weak domestic demand.
For all of last year, the economy grew just 1.7 per cent, and economists expect only a bit of quickening this year.
Sluggish growth might lead the Fed to launch a further round of bond purchases to spur the recovery.
“Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability,” New York Federal Reserve Bank president William Dudley told reporters.
The central bank on Wednesday said it expected to keep interest rates at rock bottom levels at least until late 2014, and it warned the economy still faced big risks, a suggestion the euro zone debt crisis could still hit hard. – (Reuters)
