Gross domestic product (GDP)—a broad measure of all goods and services produced—grew at a 3.2% annual rate in the fourth quarter, the government said Friday. That's up from the 2.6% pace notched the quarter before.
The expansion in large part was fueled by a jump in consumer spending—a crucial change from earlier in the recovery, when growth relied heavily on businesses investing and building up inventories. Final sales—a measure that gives a feeling for underlying demand in the economy by subtracting the change in business inventories from GDP—notched its biggest increase since 1984, growing 7.1% in the fourth quarter.
But beware, the economic outlook still has clouds.
Some economists worry that the year-end spending splurge by consumers could ebb. Another serious challenge is unemployment, which stands at 9.4%. This recovery has been halting, following a recession that led to a retrenchment in spending and high unemployment.
Rising exports from U.S. companies helped to push up growth last quarter. As imports declined, trade added 3.44 percentage points to GDP. However, trade isn't likely to keep contributing to expansion. As companies work to rebuild inventories—last quarter, inventory reduction subtracted 3.7 percentage points from growth—that will also lead to greater imports, which creates a drag on expansion.
Consumer sentiment, meanwhile, slipped slightly in January. A Reuters/University of Michigan index released Friday fell to 74.2, from 74.5 in December, as perceptions of current economic conditions soured a bit. Analysts cautioned that sustained growth will rely on a faster pace of hiring early in 2011. The key question in this monthly survey is "Do you think you will be better off or worse off financially at this time next year?" Obviously, more people fell they would be worse off than in the future than they did in the fourth quarter of 2010.
The lack of leadership in Washington, D.C. is not helping the U.S. economic recovery. The State of the Union speech last week demonstrated a lack of leadership by an inability to focus on what is important now. The speech was more than half over before the president got around to the government spending crisis. He signaled no interest in making cuts, which suggested that he continues not to comprehend America's central anxiety about government spending: that it will crush our children, constrict the economy in which they operate, make America poorer and lower its standing in the world.
Yes, Mr. President, America is in a Sputnik moment, the world seems to be jumping ahead of us, our challenge is to make up the distance and emerge victorious. But the administration continues to struggle with the concept of priorities. They cannot see where the immediate emergency is.
Cuts in state and local governments, meanwhile, could continue to curb growth for the next two years. State and local governments shaved 0.1 percentage point from growth last quarter as shortfalls prompted them to cut spending and increase taxes.
Rensselaer County, N.Y., faced a multimillion-dollar shortfall for 2011 that resulted in both tax increases and layoffs. To balance the budget, the county laid off 23 public employees at the end of 2010 and raised its property tax by 2.5%.
"Currently, we would look at it as being worse next year," said Martin Reid, chairman of the legislature.
Source: The Wall Street Journal, January 29, 2011