Economy Grew 2.8 Pct. in Q4

(Dow Jones) - The US economy grew at its fastest pace in more than a year and a half in the final three months of 2011, signaling a sturdier recovery took hold despite troubles in other parts of the world.

The nation's gross domestic product (GDP) -- the value of all goods and services produced -- grew at an annual rate of 2.8 percent between October and December, the Commerce Department said Friday.

That was up from 1.8 percent growth in the third quarter and 1.3 percent in the second quarter and was the fastest pace since the second quarter of 2010.

Economists surveyed by Dow Jones Newswires expected three percent growth.

The faster growth capped an otherwise sluggish year in which the economy grew by 1.7 percent, slower than the three percent growth in 2010. Now, the question is whether the momentum in the fourth quarter will simply be another blip in a recovery marked by fitful starts, or whether it marks a stronger phase of the recovery.

One encouraging sign was that consumers continued to step up spending, as more Americans got jobs, their disposable incomes rose and price increases eased. Consumer spending, which accounts for more than two-thirds of demand in the economy, rose two percent in the fourth quarter compared with 1.7 percent in the third and 0.7 percent in the second quarter.

The increase in spending came as Americans continued to dip into their savings, as the personal savings rate slipped a bit.

Another key factor in the growth was a restocking of shelves by businesses, who had whittled their inventories during the summer amid fears of a second recession back then. Since those fears ebbed, businesses have been replenishing their inventories to respond to increased demand.

Business investment grew at a much slower pace, however, a factor that the government said dragged on growth. Nonresidential fixed investment grew by 1.7 percent, compared to 15.7 percent in the third quarter and 10.3 percent in the second quarter.

Real final sales -- GDP less changes in private inventories -- increased 0.8 percent, compared with a 3.2 percent rise in the third quarter.

Another drag was an acceleration in imports, widening the trade deficit, the government said. Exports rose 4.7 percent, the same pace as in the third quarter. Economists have warned that exports could be a vulnerable part of the economy as conditions in the eurozone deteriorate this year.

Overall government spending declined 4.6 percent, with federal, state and local governments all pulling back.

Even with the speed-up in growth, economists are expecting the economy to grow only modestly this year, as the sovereign-debt crisis in Europe threatens to hurt US exports, and while governments at home continue to cut.

Federal Reserve officials estimate that GDP will expand between 2.2 percent and 2.7 percent this year. Fed officials said after their latest policy-making meeting this week that they expected to keep short-term interest rates near zero for almost three more years and signaled they could restart a controversial bond buying program in the latest attempt to boost the recovery.

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