US economy grew 2.8% in fourth qtr

The US economy grew at a 2.8 per cent annual rate in the fourth quarter, slower than previously calculated and less than forecast as state and local governments made deeper cuts in spending.

The revised increase in gross domestic product compares with a 3.2 per cent estimate issued last month and a 2.6 per cent gain in the third quarter, figures from the Commerce Department showed today in Washington. The economy, excluding inventories, grew at a 6.7 per cent pace, the most since 1998.

Americans may be in a better position to keep spending after tax cuts put more money in their pockets, while companies such as Caterpillar Inc benefit from faster economies overseas and business investment. A surge in oil prices sparked by turmoil in Africa and more cutbacks by state and local governments represent risks to growth.

“Consumer spending and inventories will be the biggest contributors to growth in the current quarter,” Harm Bandholz, chief US economist at UniCredit Global Research in New York, said before the report. “Consumption looks more self-sustaining than it was a year ago.”

For all of 2010, the world’s largest economy expanded 2.8 per cent, the most in five years, after shrinking 2.6 per cent in 2009. The volume of all goods and services produced rose to $13.37 trillion in the final three months of 2010.

Economists projected a 3.3 per cent gain in fourth-quarter GDP, according to the median forecast in a Bloomberg News survey of 77 economists. Estimates ranged from 3 per cent to 4.4 per cent.

Stock-index futures
Stock-index futures maintained gains after the report, with the March contract on the Standard & Poor’s 500 Index rising 0.6 per cent to 1,310.4 at 8.37 am in New York. Treasuries were little changed from yesterday, with the yield on the benchmark 10-year note at 3.45 per cent.