US economic growth better than expected by end of last year

THE US economy was in a stronger position at the end of last year than had previously been thought, offering confidence that the recovery was better placed to withstand the threat of external factors to its momentum – from turmoil in the Middle East to the earthquake in Japan – although consumers are nervous.

US gross domestic product grew at an annualised rate of 3.1 per cent in the fourth quarter, a more rapid clip than the earlier estimate of 2.8 per cent growth.

The improvement – which slightly exceeded economists’ expectations – was the result of higher investment in inventories and non-residential structures, offsetting a downward revision to exports, which were still a large contributor to growth, the commerce department said yesterday.

Last week, Federal Reserve officials said the US recovery was on a “firmer footing”, amid signs that job creation was beginning to occur at a faster pace.

However, the housing market still remained “depressed”, central bank officials said.

There have also been concerns that the increase in the price of crude oil and other commodities could put a dent in consumer spending this year – after it revved up to a 4 per cent annualised growth rate in the fourth quarter.

The Fed has decided to maintain its $600 billion asset purchase programme until the end of June, as planned, in order to continue to provide monetary stimulus to the economy. The upward GDP revision announced yesterday could, on the margins, make it less likely that Fed officials would consider extending the monetary stimulus with a new round of government bond purchases.

Nariman Behravesh and Sara Johnson, economists at IHS Global Insight, yesterday said the US recovery was “intact”, with growth for 2011 expected to be about 3.5 per cent. “Better job prospects and improved household finances are having a bigger impact than the headline effects of higher oil prices, stock market jitters, and events in Japan.”

– Copyright Financial Times Limited 2011