Economy Not Likely To Reprise '09 Year-End Growth

The economy grew at a 5.6 percent pace in the fourth quarter of last year, the Commerce Department reported Friday. Although the growth was slightly lower than expected, it was the economy's best showing in six years.

Most economists had expected no revision in the government's third and final estimate. Last month, the department put the growth rate for output of goods and services at 5.9 percent for the October-to-December period. That's up from third-quarter gross domestic product of 2.2 percent.

The latest announcement puts the GDP closer to the 5.7 percent in the initial advance estimate at the beginning of February.

The department's Bureau of Economic Analysis chalked up the downward revision to slower consumer spending and weakness in the commercial real-estate market.

Economists had reason to question whether the economy could sustain such a steep upward trend. Much of the growth comes from businesses restocking empty shelves after months of tepid consumer demand, which is expected to improve slightly — but not significantly — in the current quarter.

High unemployment, tight credit and home foreclosures that remain at record highs are certain to keep consumer spending on the sluggish side. And much of the fourth-quarter growth was the result of economic stimulus programs, many of which will soon begin winding down.

Most economists are forecasting an anemic growth rate of 3 percent or less in the first quarter of 2010, with similar lackluster gains in the next two quarters. Even so, the forecasts are a big change from an economy that was shrinking just a year ago.

"In the first quarter, we think it's going to slow down and therefore growth is going to be around 2.5 percent instead of the 5.6 percent we saw in the fourth quarter," said David Wyss, chief economist at Standard & Poor's.

Although the numbers released Friday were slightly worse than expected, Wall Street basically shrugged off the news in early trading.

Businesses in the fourth quarter boosted spending on equipment and software at a pace of 19 percent, the most in 11 years. Meanwhile, the weak U.S. dollar helped boost exports to their highest level in 14 years, as foreigners snapped up relatively inexpensive U.S.-made goods and services at a pace of 22.8 percent.

But consumers increased their spending at a pace of just 1.6 percent. That was weaker than the government's prior estimate and was down from a 2.8 percent growth rate in the third quarter.

Friday's report also showed a slowing in corporations' after-tax profits. Under one measure, after-tax profits rose at a rate of 6.5 percent in the fourth quarter, down from a 12.7 percent growth rate in the third quarter. Although some companies are flush with cash, they aren't inclined to ramp up hiring until the recovery is on firm footing.

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