Economy soars 5.7 percent, fastest in 6 years

[John Manning]

WASHINGTON (Reuters) - The economy grew at a faster-than-expected 5.7
percent pace in the fourth quarter, the quickest in more than six years,
as businesses made less-aggressive cuts to inventories and stepped up
spending.

The Commerce Department said on Friday its first estimate put
fourth-quarter gross domestic product growth at its fastest pace since
the third quarter of 2003. The economy expanded at a 2.2 percent annual
rate in the third quarter.

Analysts polled by Reuters had forecast GDP, which measures total goods
and services output within U.S. borders, growing at a 4.6 percent rate
in October-December period.

"Wow, great number. It's very solid and gives us a running start into
the second half of the year when we can't rely on government stimulus,"
said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

"That's part of the plan, to get us moving as fast as possible so when
life support is removed we'll have a pulse."

U.S. stock index futures extended gains on the data, while Treasury debt
prices deepened losses. The dollar rose against the yen.

Getting the economy on a sustainable growth track remains one of the key
challenges facing President Barack Obama, who on Wednesday outlined a
raft of measures to create jobs and nurture the recovery.

Growth was boosted by a sharp slowdown in the pace of inventory
liquidation, a factor that could mask the strength of the economic
recovery from the longest and deepest downturn since the Great Depression.

But even stripping out inventories, the economy expanded at an annual
rate of 2.2 percent, accelerating from the 1.5 percent increase in the
third quarter, reflecting relatively strong performance from other
segments of the economy.

Business inventories fell only $33.5 billion in fourth quarter after
dropping $139.2 billion in the July-September period. The change in
inventories alone added 3.39 percentage points to GDP in the last
quarter. This was the biggest percentage contribution since the fourth
quarter of 1987.

For the whole of 2009, the economy contracted 2.4 percent, the biggest
decline since 1946, the first year after the end of World War II.

In the last three months of 2009, consumer spending increased at a 2
percent annual rate, below the 2.8 percent annual pace in the prior
quarter when consumption got a boost from the government's "cash for
clunkers" program.

In the fourth quarter, consumer spending contributed 1.44 percentage
points to GDP.

Consumer spending, which normally accounts for about 70 percent of
economic activity, has been held back by the worst labor market in a
quarter century.

Business investment in the fourth quarter grew for the first time since
the second quarter of 2008 as the drag from the troubled commercial real
estate was offset by robust spending on equipment and software.

Business investment rose at a 2.9 percent rate after falling 5.9 percent
over the previous three-month period.

The growth of spending on new home construction braked sharply in the
fourth quarter to an annual rate of 5.7 percent from an 18.9 percent
pace in the third quarter. Home building has received a lift from a
popular tax credit for first-time buyers, but recent data have hinted at
some weakness starting to creep in.

Export growth outpaced imports, leaving a trade gap that contributed
half a percentage point to GDP growth in the last quarter.

Separately, employment costs in the United States rose 0.5 percent in
the fourth quarter, Labor Department data showed.

Analysts polled by Reuters had expected the Employment Cost Index to
increase 0.4 percent in the three months ending in December 2009, after
it inched up an unrevised 0.4 percent in the prior quarter.

Wages and salaries, which make up about 70 percent of compensation, and
benefits were both up 0.5 percent, the Labor Department said.

http://www.reuters.com/article/idUSN1416882220100129