The U.S. economy grew at a 2.8% annual rate the last three months of 2011, falling short of expectations as spending by consumers, businesses and governments came in below economists’ projections, the Commerce Department said.
That shows the economy snapping back from its early-2011 dip, while cuts in government spending and slower growth in private investment kept the economy’s performance toward the low end of forecasts.
Americans spent more on cars and trucks, and companies built up their stockpiles. But growth in the October-December quarter — and all of 2011 — was held back by the biggest annual government spending cuts in four decades.
Adjusted for inflation, the Commerce Department’s report on GDP says the economy grew just 1.7% last year, almost half of 2010’s 3% growth.
The report falls short of the consensus forecast of USA TODAY’s panel of 48 economists, whose median prediction was for a 3.1% growth rate. The report also suggests the economy might not accelerate in coming months as much as expected.
The major elements of the economy, excluding government spending especially defense expenditures, all grew faster than in the third quarter, the department’s Bureau of Economic Analysis reported Friday, January 27. Consumer spending rose 2%, while business investment grew 1.7%. Government spending fell sharply.
Inflation-adjusted federal government spending and investment plunged 7.3% in the fourth quarter compared to an increase of 2.1% the previous quarter. National defense decreased 12.5%, in contrast to a third-quarter increase of 5%.
Consumer spending, while below economists’ expectations, did rise 2% in the final months of the year and businesses invested more in inventories, a sign they expect more demand. But most economists expect businesses to ease up on restocking in the first three months of this year. That should slow first-quarter growth.
Most economists have been predicting the economy will slow from the fourth-quarter pace in early 2012. The consensus forecast of USA TODAY’s panel is a 2.2% annual growth pace in both the first and second quarters. That assumes the economy is continuing to rebound moderately from the financial crisis and recession, which cost the U.S. 8.7 million net lost jobs between December 2007 and February 2010. About 2.7 million of those jobs have been replaced.
“The economy has definitely improved since the lull in growth in the middle of 2011 because of the Japanese disaster, higher energy prices, and the debt limit debate in Washington,” PNC Financial chief economist Stuart Hoffman said.