Consumer spend supports robust US GDP

City A.M. Reporter
The US economy gathered speed in the fourth quarter if marginally below expectations, recording strong exports and the biggest gain in consumer spending in more than four years.

But despite this signal that a sustainable recovery is underway, unemployment remains painfully high.

US GDP grew at a solid 3.2 per cent annual rate in the final three months of 2010, the Commerce Department said, after expanding at a 2.6 per cent pace in the third quarter. Economists had expected a 3.5 per cent rate.

For the whole of 2010, the economy grew 2.9 per cent, the biggest gain since 2005. The economy contracted 2.6 per cent in 2009.

“Though the GDP data came in slightly below expectations... (its acceleration) was driven by two factors which are very important when looking forward, and that is the more important factor in assessing the future course of the US economy,” said Quantitative Commodity Research consultant Peter Fertig.

"That is private consumption and exports, which came in better than expected," he said. "With the Dow Jones index trading this week above 12,000, that all indicates that the US economy is on an expansionary path."

The recovery was fuelled by growing consumer spending, which accounts for more than two-thirds of US economic activity.

The sector grew at a 4.4 per cent rate – the fastest pace since the first quarter of 2006.

Growth also came from a pick-up in exports, which resulted in a narrower trade deficit in the fourth quarter.

Trade added 3.44 percentage points to GDP growth, the first contribution in a year.

But the US jobless rate has been stuck above nine per cent since May 2009 and analysts say an expansion rate of at least three per cent over several quarters is needed to cope with new entrants in the labor market and the unemployed.

The unemployment rate fell to 9.4 per cent in December from 9.8 per cent in November.