GDP grows 2.8% at year's end but rate falls short of expectations

GDP grows 2.8% at year’s end but rate falls short of expectations

By Don Lee

Jan. 27, 2012 12 AM PT

The American economy ended a year of mostly disappointments with modestly stronger growth, but still less than what was hoped for by many analysts.

The nation’s gross domestic product -- the total value of goods and services produced in the U.S. -- rose 2.8% in the fourth quarter from the prior quarter, the Commerce Department reported Friday.

While that was an acceleration from the feeble growth rate of 1.8% in the summer, the latest GDP figure was below the 3% that most analysts were projecting. The final quarter of 2011 got a big lift from businesses increasing their stockpile of goods, but a buildup of inventory at year’s end is likely to hold down growth this quarter.

The fourth quarter also saw a pickup in consumer spending as people bought more cars and household furnishings. But spending on services was weak. Cutbacks by government, especially at state and local levels, slower business investments and a bigger trade deficit dragged down the economy at year’s end.

With the fourth-quarter data, GDP for all of 2011 expanded at a 1.7% rate -- a pace too weak for employers to add enough jobs to keep up with the workforce population and productivity gains. Most analysts see the GDP growth rate retreating early this year to about 2%.

Consumer spending accounts for about 70% of the American economy. Despite strong spending early in the holiday season, retail sales weakened in the waning weeks of last year. The housing market shows signs of bottoming, but unless job growth accelerates, many families’ spending capacity is limited by high debts and weak income growth.

Earlier this week the Federal Reserve projected the GDP to advance at a rate of 2.2% to 2.7% in 2012. The unemployment rate, currently at 8.5%, was seen as showing little if any improvement at the end of the year.

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