The U.S. economy picked up a little steam last quarter, growing at its fastest pace in a year and a half. Whether it can sustain that momentum is critical to millions of Americans out of work — and perhaps President Barack Obama’s re-election chances.
The nation’s economic output grew 1.7 percent in 2011 and at an annualized rate of 2.8 percent in the fourth quarter, the Commerce Department reported Friday, probably putting to rest last summer’s fears that a second recession was imminent. Other reports this week on manufacturing and consumer sentiment offered similar, if mild, encouragement.
“All in all, it’s not bad, but there’s no ‘oomph,’ ” said Jay Feldman, an economist at Credit Suisse.
Forecasts have called for such slow growth that the Federal Reserve on Wednesday said it planned to keep interest rates near zero through 2014. Even with the pickup in output, the pace last quarter was below the average of economic expansions in the United States since World War II. Given how much ground has been lost during the recession, the U.S. economy needs above-average growth right now. Government spending is not helping, either, not because it’s too big — but because it’s shrinking at a rapid pace. Spending at the federal, state and local levels fell at an annual rate of 4.6 percent last quarter, providing a significant drag on total gross domestic product.
At the federal level, the biggest cuts were in national defense, which fell at a whopping annual rate of 12.5 percent. That’s an unusually large dip, and economists do not expect to see it repeated in the beginning of 2012.
But legislators may wield the ax elsewhere in the federal budget. Congress has not decided whether to renew a temporary payroll tax cut or extend unemployment benefits past February, when both are scheduled to expire. Allowing these benefits to lapse would shave a percentage point off gross domestic product growth this year, said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
Growth in the fourth quarter was also driven mostly by companies rebuilding their stockroom inventories, not by consumers who were shopping more or foreign businesses buying more American-made products. And companies are likely to have only so much appetite for refilling their backroom shelves if consumers are still unwilling to buy those products.
Consumer spending rose at an annual pace of 2 percent, slightly better than the 1.7 percent in the previous quarter, Friday’s report showed.
