The US economy grew slower than initially estimated in the fourth quarter as government spending contracted more sharply and consumer spending was less robust, a new report has shown.
Gross domestic product grew at annualised rate of 2.8 per cent, the Commerce Department said in its second estimate, marking a downward revision from its initial 3.2 per cent estimate.
Economists had expected GDP growth to be revised up to a 3.3 per cent pace. The economy expanded at a 2.6 per cent rate in the third quarter. For the whole of 2010, the economy grew 2.8 per cent instead of 2.9 per cent.
The pace of growth was too slow to do much to lower the unemployment rate, which fell during the quarter from 9.6 per cent to 9.4 per cent. It fell again in January to reach 9 per cent.
Federal Reserve officials have been concerned the economy is expanding too slowly to bring down unemployment significantly.
The report supported the view that the central bank will complete its $600bn (£370bn) government bond-buying programme to stimulate demand by lowering interest rates.
"A bit disappointing, but largely old news at this point that will take a back seat to fears about growth beyond the first quarter in the wake of both oil price hikes and a budget impasse that could cut into government spending," said Avery Shenfeld, an economist at CIBC World Markets in Toronto.
US government debt prices pared losses on the data, while the dollar extended losses against the yen.
The government revised fourth-quarter growth to reflect a steeper contraction in government spending than previously estimated.
Government spending declined at a 1.5 per cent rate rather than 0.6 per cent, due to weak state and local government outlays, and subtracted 0.31 percentage points from GDP.
In addition, consumer spending – which accounts for more than two-thirds of US economic activity – grew at a 4.1 per cent rate in the final three months of 2010 instead of 4.4 per cent.
It was still the fastest since the first three months of 2006 and was an acceleration from the third quarter's 2.4 per cent rate. But there are concerns that surging crude oil prices could hurt consumer spending and slow the economy's recovery.
The government revised business investment up, though spending on equipment and software was lower. Business spending increased at a 5.3 per cent rate instead of 4.4 per cent.
Excluding business inventories, the economy expanded at a 6.7 per cent pace rather than 7.1 per cent. It still marked the biggest increase in domestic and foreign demand since 1998.
In contrast, domestic purchases grew at a much more moderate 3.1 per cent rate instead of 3.4 per cent.
Exports were revised higher, but the upward revision to imports was even greater. Trade added 3.35 percentage points to GDP growth instead of 3.44 percentage points.
City A.M. Reporter