U.S. saw growth spurt at end of 2011: Fed

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The final weeks of 2011 were the U.S. economy’s strongest since last spring, before the European government debt crisis began to be a serious concern.

Americans spent more freely, U.S. factories made more goods, travel increased and the auto industry enjoyed its best stretch of the year.

That’s the bright picture the U.S. Federal Reserve sketches in a survey released Wednesday.

Economy

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It says all but one of the Fed’s 12 banking districts experienced some growth from late November through the end of the year.

The Fed does note that some sectors of the economy, notably housing, remain weak.

But overall, the message was encouraging. It comes just six months after the U.S. economy nearly stalled under the weight of high food and gas prices and supply disruptions out of Japan that slowed U.S. manufacturing.

The U.S. economy and the job market have both picked up since then. And December may end up being the strongest month last year, an optimistic sign for the economy in 2012.

American employers added 200,000 net jobs last month, and the U.S. unemployment rate fell to 8.5 per cent – the lowest rate in nearly three years but still high by historical standards.

The Canadian unemployment rate, by contrast, is about 7.5 per cent – thanks largely to a quicker rebound from the 2008-09 recession. Still, the Canadian economy has slowed in recent months and many economists say further growth it will require a pickup in the U.S. economy.

U.S. auto makers, which import some of their vehicles from Canadian factories in Ontario, reported having their two best months of sales for 2011 in November and December. And U.S. factories ended the year with their strongest month of growth since late spring, according to a closely watched gauge of the industry.

Most economists are predicting that the U.S. economy grew at an annual rate of 3 per cent in the final three months of last year. That would be an improvement from the summer, when it expanded just 1.8 per cent, and much better than the 0.9 per cent growth in the first half of the year.

Still, the modest recovery is vulnerable to setbacks. Europe’s debt crisis could lower demand for U.S. exports. Consumers could pull back on spending, especially if they continue to see little growth in wages.

And Congress could decide not to extend the Social Security tax cut or long-term unemployment benefits, both of which expire at the end of February. That would leave many households with less income, which would slow spending.

Consumer spending is important because it drives 70 per cent of economic activity.

The Fed announced no new actions after its Dec. 13 meeting. But in the minutes from the meeting that were released last week, the Fed said it will start this month announcing four times a year how long it plans to keep short-term interest rates at existing levels.

The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.

The Fed’s next meeting is on Jan. 24 and 25.

With files from The Canadian Press

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