Outside the Beltway

Economy Grows At 3.2% Rate In 4th Quarter

Doug Mataconis · Friday, January 28, 2011 · 1 comment

This morning’s Commerce Department report on 4th Quarter GDP growth contained some good news, but not enough:

With a little more money in their wallets and a little less fear in their hearts, American consumers helped pull the economy up by its bootstraps in the fourth quarter of last year.

Gross domestic product, a broad measure of all the goods and services produced by the economy, grew at an annual rate of 3.2 percent in the fourth quarter, up from 2.6 percent in the previous period, according to a Commerce Department report released Friday.

As a result of this slightly speedier expansion, overall economic output has finally matched its prerecession peak. Still, given population growth and high unemployment, the economy has fallen far short of what it could be if it were healthy, economists said.

Thanks to modestly higher paychecks and swelled investment portfolios, Americans felt comfortable buying again and reducing how much they salted away. Consumer spending grew at an annual rate of 4.4 percent in the October-December period, its quickest pace in nearly five years and almost double the growth rate from the previous quarter.

“”This year will be very good for the U.S. economy,” said Augustine Faucher, director of macroeconomics at Moody’s Analytics. “Stronger demand is building as consumer confidence strengthens.”

The payroll tax cut and the extension of the Bush tax cuts that were passed in December are expected to further buoy consumer spending, which many economists predict will continue to grow at an annual pace of about 3 or 3.5 percent in 2011.

The shrinking trade deficit also helped the economy regain some momentum.

It’s good, but not necessarily good enough:

A group of 27 economists surveyed by CNNMoney had predicted GDP growth of 3.5%.

“The U.S. economy is finally, after three years, producing as much as it did before the Great Recession hit. But this is by no means ‘mission accomplished,'” Economic Policy Institute economist Josh Bivens said in a research note.

“The 3.2% growth registered in the last quarter of 2010 would, if sustained over the next year, provide almost no downward push to the unemployment rate,” he said.

So, in some sense, we’re in the same place we were in the spring of 2010 when it looked like the economy was about to turn around, and then it fizzled out. Where we go from here depends on a number of facts, not the least of them being an international situation that is growing more uncertain by the hour.