The United States has now put together one of its strongest periods of growth since the financial crisis, a showing that bodes well for what comes next.
The U.S. economy expanded at an annual rate of 3.2 per cent in the fourth quarter, according to the Commerce Department Thursday, a relatively strong figure that supports the growing view that America is due for a good year in 2014.
Most analysts on Wall Street predicted the 3.2-per-cent reading, the first of three government estimates released by the Commerce Department. Gross domestic product advanced at an annual rate of 4.1 per cent in the third quarter.
“In short, fairly healthy growth, despite the government shutdown at the start of the quarter,” Jim O’Sullivan, chief U.S. economist at research firm High Frequency Economics, said in an e-mail to clients. “The data look consistent with these words from the Fed statement: `Economic activity picked up in recent quarters.’”
The report reinforces the Federal Reserve’s decision to begin slowly reducing its extraordinary monthly purchases of bonds, and could comfort the Bank of Canada, which is counting on the U.S. economy to pull Canadian exporters out of their doldrums.
“Stronger economic activity will be accompanied by further improvement in labour markets, thus allowing the Fed to continue tapering asset purchases in $10-billion [U.S.] increments with new purchases ceasing toward the end of the year,” said economist Josh Nye of Royal Bank of Canada.
American consumers and businesses are pushing through headwinds created by their elected representatives in Washington, who shut the federal government for three weeks in October in a standoff over spending priorities.
Personal consumption increased at annual rate of 3.2 per cent over the final three months of 2013, compared with a rate of 2 per cent in the third quarter. Exports surged at a rate of 11.4 per cent in the fourth quarter, an unusually large gain that should reinforce business confidence.
Those gains outweighed a big drop in federal government spending. Companies built up inventories at a slower pace in the fourth quarter, but the slowdown was less than some analysts thought it might be.
The third-quarter gain was led by a sharp increase in inventories that many economists said exaggerated the strength of the U.S. economy.
However, indicators since have surprised positively more often than negatively. Inventories added about 0.4 percentage points to GDP growth in the fourth quarter, compared with 1.67 percentage points in the third quarter.
Over all, the U.S. economy grew by 1.9 per cent in 2013 compared with 2.8 per cent in 2012, the department said.
Growth at the start of 2014 is likely to be hampered by an inventory drawdown, after four consecutive quarters of build-up,” said senior economist Michael Dolega of Toronto-Dominion Bank.
“However, we feel that given the strength elsewhere, the economy will persevere and increasingly shift into a higher gear, accelerating from 1.9 per cent last year to 2.7 per cent and 3.1 per cent in 2014 and 2015, respectively.”