US economy picked up modestly in fourth quarter

The US economy picked up speed in the fourth quarter, fresh data showed, but it appeared to be still struggling to click into second gear as investment and consumer spending remained weak. The economy grew at an annual clip of 2.8 percent in the quarter, according to the Commerce Department, a pickup from the third quarter's 1.8 percent and the best pace of the year. But it fell below average forecasts of 3.2 percent and was hardly enough to give a boost to President Barack Obama, whose record trying to get the economy moving is under scrutiny as he faces a stiff reelection challenge this year. Stockmarkets slipped after the data release, with the Dow Jones Indutrial Average closing down 0.6 percent. "Muddling through is the best term that can be applied to the current economic environment, even though the risks of a downturn have been reduced," Steven Ricchiuto of Mizuho Securities said. "By the same token, the data shows that there is no real risk of an upside surprise either." The first estimate for the October-December period showed that hesitant consumer buying and continued spending cuts by federal and local governments were still holding back the country's productive potential. A $56 billion bounce in private investment in inventories, which is frequently volatile from quarter to quarter, anchored the pick-up. That accounted for 1.9 percentage points of the 2.8 percent expansion pace, the figures showed, with most of it from the auto industry. Meanwhile personal consumption during the normally buoyant holiday shopping period grew only 2.0 percent from the previous quarter, far slower than the 3.6 percent pace of a year earlier. Spending on services was virtually flat. From another view, final sales of domestic products grew only 0.8 percent in the quarter, compared to 3.2 percent in the July-September period. Spending by authorities also fell sharply from the previous quarter, led by a 12.5 percent drop in defense outlays. The White House, which is hoping for a surge in growth that would bring down unemployment and boost President Barack Obama's reelection odds in November, called the number "encouraging" but not enough. "Faster growth is needed to replace the jobs lost in the recent downturn and to reduce long-term unemployment," said Alan Krueger, chairman of Obama's Council of Economic Advisors. The growth report came two days after the Federal Reserve cut its forecast for gross domestic product (GDP) growth this year to a range of 2.2-2.7 percent. Echoing the view of a weak economy, the Fed said it expected to keep its key interest rate at extremely low levels through 2014, 18 months longer than earlier forecast. "We continue to see headwinds coming from Europe," Fed chairman Ben Bernanke said in a news conference a meeting of the policy-setting Federal Open Market Committee. "I don't think we're ready to declare that we have entered a strong phase at this point." Treasury Secretary Timothy Geithner said in Davos, Switzerland that the US should be able to hold between two and three percent this year. "It's a realistic outcome, as long as we see a little more progress in Europe and as long as we don't see a lot of risk coming from Iran," he said. Economists saw the new data as more glass-half-full than the contrary. "Any disappointment should be mitigated by one plain truth -- (the figures) are the best evidence yet that the American economic giant is stirring from its slumber," said Marcus Bullus at MB Capital. Ian Shepherdson of High Frequency Economics blamed some of the slower consumer spending on a lower level of fuel consumption during the uncommonly warm early-winter weather during the period. He predicted a better first quarter of 2012, with consumption firming and the government acting as less of a drag. Patrick O'Hare at Briefing Research was less confident. "The concern for the market... is that the contribution from inventories will not continue at the fourth quarter pace in the first quarter," he said. "Accordingly, there is a bit of a sting in the thought that first quarter GDP could fall back to the 'new normal' zone of 2.0 percent or less." Analysts also noted that first estimates for quarterly growth are often considerably revised as more data comes in.