Economy grows at solid 3.2% pace in fourth quarter

WASHINGTON -- The U.S. registered solid economic growth in the final three months of last year, buoyed by rising exports and the biggest increase in consumer spending in three years, the Commerce Department said Thursday.

The economy's 3.2% annualized growth rate in the fourth quarter was in line with analysts' expectations and suggests that there was good momentum heading into this year. The pickup in personal spending was particularly encouraging as that accounts for more than two-thirds of American economic activity.

Business spending for equipment accelerated, but housing investment fell in the quarter. And companies continued to build up inventory of goods, which could weigh on future production and growth if sales don't keep up.

For all of 2013, officials said, the economy expanded at a sluggish 1.9% annual rate, down from 2.8% in 2012. But the slowdown came mainly from weakness early last year; economic growth accelerated in the third quarter, to 4.1%, although more than one-third of that percentage increase came from a restocking of goods.

Underlying private-sector demand was stronger in the fourth quarter as consumer spending jumped 3.3%, compared with a 2% gain in the third quarter. Consumption was lifted by solid holiday sales as people bought more clothes and spent more on eating out.

Overall, fourth-quarter growth was 'pretty impressive' especially after taking into account the nearly three-week federal government shutdown at the start of October, said Paul Ashworth, an economist at Capital Economics.

Encouragingly, business investment for equipment, which had lagged in recent quarters, grew nearly 7% in the final quarter of last year. Net exports jumped more than 11%. The generally bright outlook for trade earlier this year, however, has been clouded in recent days with currency turmoil in emerging markets and uncertainties about China's economic growth.

Residential investment was unusually weak in the final quarter, although analysts said that appeared to be an anomaly as homebuilding was strong in the fourth quarter. Federal government spending, defense and non-defense, also was down sharply, but this was also seen as temporary.

'The broader picture is that, as the massive fiscal drag diminishes, U.S. economic growth is accelerating,' Ashworth said.

Said Kathy Bostjancic, an economist at the Conference Board, a business-sponsored research group: 'The economic performance in the fourth quarter and third quarter was a relatively pleasant change for the better. And more of the same could be in store this winter and spring.'

ALSO:

Obama raises business leaders' hopes Fed cements tapering with another cut in bond-buying stimulus