WASHINGTON - The U.S. economy grew at a 3.2 percent annual rate in the October-December quarter on the strength of the strongest consumer spending in three years, an encouraging sign for 2014.
The fourth-quarter increase followed a
4.1 percent growth rate in the July-September quarter, when the economy
benefited from a buildup in business stockpiles.
For 2013 as a whole, the economy grew
a tepid 1.9 percent, weaker than the 2.8 percent increase in 2012, the Commerce
Department said Thursday. Growth was held back last year by higher taxes and
federal spending cuts.
With that drag diminished, many economists
think growth could top 3 percent in 2014. That would be the best performance
since the recession ended in mid-2009.
The strength in the final three months
of 2013 came from a 3.3 percent growth rate in consumer spending, a significant
acceleration from 2 percent spending growth in the third quarter. It was the
best spending pace since the fourth quarter of 2010. Consumer spending is
particularly important because it accounts for about 70 percent of the economy.
"The most encouraging element was the pick-up in the growth rate of domestic demand," Paul Ashford, chief economist at Capital Economics, said in note. "Growth in business investment in equipment picked up to 6.9 percent, from 0.2 percent. There were some weak elements, but they should be temporary."
Government spending fell at a 4.9 percent rate last quarter. State and local government activity rose at a scant 0.5 percent rate, but federal government spending tumbled at a 12.6 percent rate. The 16-day partial government shutdown in October cut fourth-quarter growth by about 0.3 percentage point, the government said.
The strength in consumer spending
reflected gains in purchases of durable goods such as autos and nondurable
goods such as clothing. Spending on services also rose strongly.
Businesses invested in more equipment
last quarter. There was also strength from a shrinking trade deficit. But
housing construction declined.
The 3.2 percent estimated growth rate
for the economy was the government's first of three projections of gross domestic product for the
October-December quarter. The GDP measures the economy's total output of goods
This year, economists think the
economy will get a lift from continued gains in hiring. Further steady job
growth would give more households money to spend and help lift consumer spending,
which accounts for about 70 percent of economic activity.
In addition, U.S. manufacturers are
expected to get a lift from rising global demand. And at home, housing
construction and auto sales, which showed strength last year, are expected to
register further gains in 2014.
Because of the stronger growth
prospects, the Federal Reserve said Wednesday that it would continue to reduce
the monthly bond purchases it's been making to try to boost the economy.
The Fed bought $85 billion a month in
bonds last year to try to keep long-term interest rates low. It announced an
initial $10 billion reduction in December. And after its meeting Wednesday, it announced another $10 billion cut. That will put its monthly purchases at $65
Many analysts think the Fed will keep
paring its support at each of its meetings this year until it eliminates new
bond purchases entirely in December.
In making the announcement, the Fed cited an improving economy, including more strength in consumer and business spending.