US economic growth improves

US economic growth accelerated in the last three months of 2010 to an annualised rate of 3.2%, corresponding to a 0.78% quarterly increase.

This compares with an annual GDP rate of 2.6% from the Commerce Department in the previous quarter.

A rise in consumer spending contributed to the growth, as did falling imports.

The Labor Department said that wages and benefits rose 2% in 2010, which is faster than 2009, but still the second slowest rate since records began.

The Labor Department has been collecting the figures for 28 years.

The fourth-quarter GDP figure is a first estimate, and could be revised either up or down in the coming months.

The US economy grew by 2.9% in the whole of 2010, which is the strongest year of growth since 2005.

The 4.4% rise in consumer spending had a particularly strong effect because such spending accounts for more than two thirds of US economic activity.

“Unfortunately we still need to see much stronger growth to begin to really make a dent in the unemployment rate,” said Ryan Sweet at Moody’s Analytics in West Chester, Pennsylvania.

“Right now we are just barely creating enough jobs to stabilise the unemployment rate.”

The news also failed to lift Wall Street, which suffered one of its biggest one-day falls for weeks on fears about the escalating conflict in Egypt. The Dow Jones index fell 166 points, or 1.4%, to 11,823.

Source of funding

Home building made an unexpected contribution to the figures, growing 3.4%.

Government spending contracted, with much of the fall coming from state and local government.

There was also an indication that the next quarter could be strong because while consumer spending showed good growth, there was no corresponding rise in inventories to replace the sold products.

The combination of rising consumer spending but little growth in wages also poses questions.

“Traders have to digest the larger-than-expected personal consumption number… and to determine the source of funding for that jump,” said Jim Vogel, at FTN Financial in Tennessee.

The GDP report also features an inflation figure – the personal consumption expenditures (PCE) index – which rose 1.8% in the quarter, reflecting the increases in food and fuel prices.

But the core PCE index, which excludes food and energy, rose at a record low level of 0.4%.
Source: BBC