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Published: Friday, 1/28/2011

U.S. economy gained momentum at end of last year as consumers spend more and firms sell more abroad

WASHINGTON — The economy gained strength at the end of last year as Americans spent at the fastest pace in four years and U.S. companies sold more overseas. The growth is boosting hopes for a stronger 2011.

The Commerce Department reported Friday that growth rose to an annual rate of 3.2 percent in the October-December quarter. That's better than the 2.6 percent growth in the previous quarter. And it was the best quarterly showing since the start of last year.

The economy has now consistently picked up speed since hitting a rough path in the spring.

For all of last year, the economy grew 2.9 percent, the most since 2005. It was an improvement from 2009 when the economy suffered its worst decline in more than 60 years.

Increased consumer spending was a key reason the economy grew more strongly. Americans boosted their spending at a 4.4 percent pace, the most since 2006. They spent more on furnishings, appliances, cars and clothes.

That's largely why economists are more optimistic about the economy's performance this year. Consumer spending accounts for roughly 70 percent of overall economic activity.

After the recession ended in June 2009, consumers kept spending cautiously. At the end of last year, though, that began to change.

Looking ahead, economists expect consumer spending will rise 3.2 percent or more for all of 2011. That would be almost double last year's anemic rate.

A cut in workers' Social Security taxes, higher stock prices and wage gains from a slowly healing jobs market should make people feel better about spending, economists say.

Against that backdrop, economists are hopeful that consumers can once again be counted on to power the economy, especially as other bracing forces like government stimulus fade.

Stronger sales of U.S. exports to foreign buyers was another major force helping the economy at the end of last year. Exports grew at a 10 percent pace, up from a 5.8 percent pace in the July-September quarter. Economists expect sales of exports to continue to provide support for the economy this year.

Business spending on equipment and software also helped growth in the October-December quarter. Businesses also started spending again on home building and commercial construction projects after deep cutbacks.

Government spending, however, stopped being a source of growth for the economy at the end of last year. It dipped 0.6 percent in the October-December quarter — the first drop since the start of 2010. The pullback reflected cuts in spending by the federal government on defense and by state and local governments, which are struggling with budget problems. Federal spending on non-defense projects, however, grew.



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