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Business Title: U.S. Economy Expands at 3% Annual Pace, Greater Than Economists Estimated The U.S. economy expanded more than forecast in the fourth quarter as companies rebuilt inventories in anticipation of growing demand. Gross domestic product climbed at a revised 3 percent annual rate, the most since the second quarter of 2010, Commerce Department figures showed today in Washington. Economists surveyed by Bloomberg News called for no change from the previously reported 2.8 percent gain, according to the median forecast in the Bloomberg News survey. The revision reflected fewer imports and a smaller drop in non-residential investment. Income gains in the second half of 2011 were stronger than previously reported as employment growth accelerated, which may set the stage for a pickup in consumer spending that accounts for about 70 percent of the economy. At the same time, Federal Reserve Chairman Ben S. Bernanke, who testifies before Congress today, said earlier this month that bigger reductions in unemployment depend on faster growth. “The economy seems to be advancing at a persistent, albeit still modest, pace,” said Richard DeKaser, deputy chief economist at Parthenon Group LLC in Boston. “The figure was buoyed to some extent by inventory rebuilding, but we’re returning to the 2.5 percent trend pace that the expansion enjoyed before things went off track at roughly this time last year.” Stock-index futures held gains after the figures. The contract on the Standard & Poor’s 500 Index expiring in March rose 0.1 percent to 1,373 at 8:50 a.m. in New York. Growth forecasts from the 82 economists surveyed ranged from 2.2 percent to 3.2 percent. The world’s largest economy expanded at a 1.8 percent rate in the prior three months. Consumer spending grew at a 2.1 percent annual rate, little changed from the 2 percent initial estimate and reflecting a pickup in demand for services. Purchases added 1.5 percentage points to growth, the most in a year. Job growth may bolster spending as incomes strengthen. After-tax incomes adjusted for inflation increased at a 1.4 percent annual rate in the final three months of 2011, more than the previously reported 0.8 percent gain. In the prior three months, incomes climbed 0.7 percent compared with a 1.9 percent slump that was initially reported. Wages and salaries from July through September rose $107.2 billion, up from the $24.8 billion gain initially reported. This helped boost the savings rate to 4.5 percent from a previously reported 3.7 percent. In the third quarter, the rate was 4.6 percent. “The consumer may well be buying back into the economy, and if that happens, this economy will take off,” Andrew Liveris, president and chief executive officer of Midland, Michigan-based Dow Chemical Co., said in an interview yesterday. “As you get better economic data, confidence builds.” Inventories contributed the largest boost to growth in the final three months of 2011. Stockpiles added 1.88 percentage points to GDP, compared with a previously estimated 1.9 points. GDP minus inventories, or final sales, rose 1.1 percent. Imports of goods and services were less than initially reported, subtracting less from fourth-quarter GDP. Business investment was revised higher. Corporate spending on structures fell at a 2.6 percent rate, compared with a 7.2 percent drop initially reported. Business spending on equipment and software rose at 4.8 percent annual rate last quarter. While fourth-quarter capital spending was slower than the prior period’s 16 percent gain, recent data indicate it may be strengthening. Factory output rose 0.7 percent in January after a 1.5 percent surge in December, marking the best two-month performance since July-August 2009, Fed data showed earlier this month. The Institute for Supply Management’s index of new orders to manufacturers rose last month to the highest level since April. Orders for “durables have had pretty much had a V-shaped recovery in the United States,” James McGill, chief human resource officer at Eaton Corp. (ETN), said in a Feb. 24 conference call with analysts. “The good news here is that this has been sustained primarily by growth in capital goods. We think that gives us some traction, some confidence in expecting that the recovery will continue into 2012.” Employers added 243,000 workers in January, the most in nine months, and the unemployment rate dropped to 8.3 percent, Labor Department data show. At the same time, Bernanke signaled Feb. 7 that the central bank is holding to a pledge to keep borrowing costs close to zero at least through late 2014 even after the decline in the jobless rate. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work,” Bernanke said in response to a lawmaker’s question during his testimony before the Senate Budget Committee. “There are also a lot of people who are either out of the labor force because they don’t think they can find work” or who have taken part-time jobs. Bernanke will give his semi-annual economic forecast to the House Financial Services Committee at 10 a.m. today.
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