Economy Shows Solid Growth at End of 2006

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The government's latest figures on the economy show that the gross domestic product grew at an annual rate of 3.5 percent in the fourth quarter of 2006, a stronger showing than many analysts had expected.

Analysts had anticipated problems from a falloff in housing, high energy prices and a rise in inflation. In the end, none of those things happened, according to David Wyss, an economist at Standard & Poor's.

"First of all, the consumer was out there really spending his heart out at Christmas," Wyss said. "It was a very good Christmas for the retailers."

As for the dire predictions about the effect of the housing on the economy, Wyss says the sector did take a hit, but not a big-enough one to drag down the entire economy.

"Housing did about what we thought," he said. "It was down 19 percent. That's a huge drop."

But housing activity makes up only about 6 percent of the total economy, Wyss said.

There was more good news on the inflation front. Even with the economy growing faster than expected, price pressures were well behaved. In fact, a closely watched inflation guage within the GDP showed the biggest one-month drop in more than 50 years. That was mostly because energy prices were falling throughtout the last few months of the year.

Most economists expect the good news on inflation will give Federal Reserve policy makers one more reason not to do anything about interest rates as they wrap up a meeting in Washington Wednesday.

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