WASHINGTON -- The lower-than-expected annualized growth rate reported Friday for the final three months of 2011 points to a tepid recovery, but some signs were more encouraging.
Most mainstream economists had expected the fourth-quarter number to come in at 3 percent or higher, and the 2.8 percent reported from the Commerce Department meant that the U.S. economy grew at an annual rate of 1.7 percent for all of last year.
That's below 2010's growth rate of 3 percent for the nation's gross domestic product, the sum of goods and services produced in the U.S. economy.
"I had hoped for a better GDP number, but I'm not worried," said Mark Zandi, chief economist for forecaster Moody's Analytics. "Cutting through all the crosscurrents in the data ... the economy is growing near 2.5 percent. This is just enough growth to create enough jobs to maintain at least a stable unemployment rate. The economy re-accelerated at the end of last year and has started 2012 with a bit of momentum given the improvement in the job market."
The White House noted that it was the 10th consecutive quarter of GDP growth, lifting the nation's economy above where it stood in the final three months of 2007, the start of what's now called the Great Recession.
"While the continued expansion is encouraging, faster growth is needed to replace the jobs lost in the recent downturn and to reduce long-term unemployment," Alan Krueger, head of the White House Council of Economic Advisers, said in his blog.
One reason for the White House's optimism is that perceptions about the economy seem to be turning more positive. Shortly after the GDP numbers were released, the University of Michigan-Reuters index of consumer sentiment was reported, and it came in slightly higher than consensus expectations. It was the latest in a string of positive indicators, including stronger employment numbers and solid manufacturing data.
Current conditions
More encouraging was the survey's index of current conditions. It gauges how Americans feel about their own financial conditions and whether they think it's a good time to buy pricey items such as cars and big appliances. That index rose sharply from the previous month and stands near a one-year high.
Taken as a whole, however, quarterly growth rates continue to be far smaller than they've been when coming out of past recessions, and there are few signs of the economy roaring back into high gear.
"The fourth-quarter GDP data doesn't show the recovery 'taking off.' It's consistent with continued but gradual improvement," Nigel Gault, the chief U.S. economist for forecaster IHS Global Insight, said in a note to investors.
Details in Friday's numbers were the reason for the subdued outlook.
Growth in the final months of 2011 was powered in large measure by a sharp rise in business inventories - $56 billion - as firms added stock or replenished existing stocks. Much of this was in the auto sector, which has been a positive surprise in a struggling economy.
That sharp growth in business inventories is not guaranteed to be repeated in the first months of this year, and other economic indicators were relatively flat at year's end. For example, business fixed investment expanded by just 1.7 percent, with spending on equipment up nicely at 5.2 percent but offset by a 7.2 percent decrease in investment on business structures.
The 4.6 percent drop in government spending, fueled largely by a 12.5 percent decline in defense spending, dragged heavily against growth. Combined with a continued slide in government employment, on the state and federal level, a deficit-driven government economic retreat is slowing the broader growth rate.
Optimism and fear
Chad Moutray, the chief economist for the National Association of Manufacturers, said his members were optimistic about continued growth but worried about the government retreat.
The "government sector - which is already providing a drag - will continue to dampen GDP, especially as more austerity measures (including defense and other nondiscretionary spending cuts) start to have real effects," he wrote in his blog Shopfloor.org.
Consumer spending, so vital to U.S. economic expansion, was a mixed bag in the final months of last year. It rose by 2 percent.
It had been 1.7 percent in the third quarter. Mainstream economists had expected 2.4 percent.
The quarterly GDP numbers are subject to revision as more data come in to the Bureau of Economic Analysis. Some economists think it likely that the fourth-quarter GDP could be revised upward during the next scheduled reporting period, Feb. 29.
