The U.S. economy expanded at a faster annual pace in the fourth quarter, growing 3.2% due to the stronger consumer spending, the Commerce Department reported Friday.
Consumer spending, which accounts for about 70% of gross domestic product, rose 4.4% during the three-month period ended Dec. 31 — the largest gain since the first quarter of 2006. Consumption of durable goods was up 21.6%.
Meanwhile, inflation slowed to a new record. Personal consumption expenditures excluding food and energy goods, the Federal Reserve’s preferred inflation measure, rose just 0.4% — the smallest gain since record-keeping began in 1959. Core PCE rose 0.5% in the third quarter. That compares with a 2.8% gain for the inflation gauge in the fourth quarter of 2007, near the start of the recession.
Nigel Gault, chief U.S. economist at IHS Global Insight, said the data suggest economic expansion will accelerate to about a 4% annual rate in the first quarter.
“Firms probably underestimated the strength of demand, especially from the consumer, and will likely want to add more inventories in the first quarter,” Gault said. “That will boost production, which helps GDP, but it will also suck in more imports. So in Q1, inventories will be a plus for growth, but trade will be a drag.”
Following its monetary policy meeting earlier this week, the Federal Open Market Committee said that energy prices increased in late 2010, but core prices continued to trend downward.
The Fed affirmed its commitment to purchase $600 billion of Treasuries through June.