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Economy Shows Solid Growth at End of 2006

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Economy Shows Solid Growth at End of 2006

Economy

Economy Shows Solid Growth at End of 2006

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RENEE MONTAGNE, host:

Our business news starts with a surprise from the economy.

(Soundbite of music)

MONTAGNE: The government just released the latest figures on the economy, and it looks like gross domestic product grew faster than many analysts had expected. GDP for the last quarter of 2006 grew at an annual rate of 3.5 percent.

Here's NPR's Jack Speer to tell us about it.

JACK SPEER: Perhaps you remember the dire predictions from the analysts. The falloff in housing threatened to drag down the entire economy. High-energy prices would put the kibosh on consumer spending, and runaway inflation was poised to take off. David Wyss is an economist at Standard & Poor's. He says in the end, that none of those things happened in the final three months of last year.

Mr. DAVID WYSS (Economist, Standard & Poor's): First of all, the consumer was out there really spending his heart out at Christmas. It's a very good Christmas for the retailers. Consumer spending in real terms was up 4.4 percent for the quarter. And that's an extremely strong performance. We also saw a continued solid capital spending - equipment spending was up 2.8 percent. And most importantly, the trade deficit - which has been a drag on the economy for a long time - improved.

SPEER: As for the predictions about the effect of housing on the economy, Wyss says while that sector did take a hit, on its own, it wasn't big enough to drag down the entire economy.

Mr. WYSS: Housing did above what we thought. It was down 19 percent. That's a huge drop. Remember, it's only 6 percent of the economy. And it was offset to some extent by the fact that we still had a pretty good strength in non-residential investment.

SPEER: And there was more good news on the inflation front. Even with the economy growing faster than expected, price pressures were well behaved. A closely watched inflation gauge within the GDP showed the biggest one month drop in more than 50 years. That was mostly because of energy prices, which were falling throughout the last few months of the year.

Most economists expect the good news on inflation would give Fed policy makers one more reason not to do anything about interest rates as they wrap up their meeting in Washington today.

Jack Speer, NPR News, Washington.

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