In another indication that recovery from the recession is struggling, U.S. economic growth for the final three months of last year has been revised downward to 2.8% by government statisticians. This amid concerns that turmoil in the Middle East will cause further problems.
The Commerce Department had previously estimated that the nation’s economic output, or gross domestic product, for the fourth quarter of 2010 had been 3.2%. That figure was a significant improvement over the 2.6% annualized growth rate in the third quarter of the year.
But on Friday, the government revised the GDP to 2.8%, which was barely better than the previous quarter. It showed the difficulty the nation’s economy is having in getting rolling after the deepest recession since the Great Depression.
“It doesn’t mean the economy will fall apart, but it takes some steam out of the economy regaining momentum,” said Diane Swonk, chief economist at Mesirow Financial. “It just takes more meat off the plate of a hungry U.S. economy.”
Unemployment remains high, at 9% nationally in January, and economists say annualized growth around 3% is not enough to help the economy replace the more than 8 million jobs it lost.
The GDP revision is based on more complete economic data than was available when the advance estimate was made last month, according to the Commerce Department’s Bureau of Economic Analysis. The lower figure was caused in part by reduced spending by state and local governments, which have been slashing budgets as federal stimulus aid has run out and deficits rise.
The drop also was fueled by lower consumer spending as rising oil prices began affecting the economy at the end of last year, Swonk said.
“The minute oil prices go up, consumers make trade-offs,” she said. “Oil prices were moving up ahead of the spike we’ve already seen, and that started to show up in consumer spending.”
Escalating unrest in the oil-producing Middle East will add to the problem, she said, noting that even if Saudi Arabia makes up for the supply lost from countries such as Libya, oil prices will remain high as investors fret over the volatile situation.
“The problem is not going to be supplies, but the risk premium priced into oil as people worry about what’s happening in the Middle East,” Swonk said.