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Economy grew at faster rate at end of 2011

This news story was published on February 29, 2012.
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By Don Lee, Tribune Washington Bureau –

WASHINGTON — The nation’s economy grew faster in the final months of last year than initially estimated as consumer spending and business investments for things like equipment and software were stronger than previously thought. Moreover, incomes were revised sharply higher, as was the nation’s savings rate.

In its report Wednesday, the Commerce Department said the nation’s gross domestic product expanded at a healthy pace of 3 percent in the fourth quarter, compared with its initial estimate of 2.8 percent. GDP, the broadest measure of economic activity, grew at a 1.8 percent annual rate in the third quarter.

The acceleration reflects stronger economic momentum recently. Job creation, manufacturing activity and consumer confidence have made solid gains, and rising stock prices could further lift sentiments even as soaring gas prices pose risks to the outlook.

For now, though, many analysts still expect GDP growth to slow in this year’s first quarter to about 2 percent, a pace that’s not strong enough to make meaningful improvement in the unemployment rate, currently 8.3 percent. One big reason for the GDP slowdown is that companies fattened their stockpile of goods late last year amid signs of stronger demand, and a big inventory buildup in one quarter often leads to slower activity in the next period.

Private household spending also remains relatively modest, despite healthy increases in auto sales. And budget-strapped governments at all levels continue to cut back. In the fourth quarter, reduced government spending sliced the GDP growth rate by nearly a full percentage point.

On the positive side, Wednesday’s revised data showed much stronger income gains late last year than previously thought. After-tax incomes rose 1.4 percent in the fourth quarter, up from an initial estimate of 0.8 percent. With the higher income figures, the personal savings rate — the amount of after-tax income that’s left after spending — was revised up to 4.5 percent in the fourth quarter, from 3.7 percent in the first estimate.

“As a result, household finances look to be on a much firmer footing than we were previously led to believe,” said Paul Ashworth, chief U.S. economist at Capital Economics.

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