The US economy expanded at a 5.9 per cent annual rate in the fourth quarter, more than the government reported last month, reflecting stronger business investment and a greater contribution from inventories.
The rise in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance in more than six years, the Commerce Department said today in Washington. Inventories added 3.88 percentage points to GDP, more than previously reported, and investment in software and equipment grew at the fastest pace in almost a decade.
Manufacturers such as Deere & Co. may continue to lead the recovery as increasing sales prompt companies to boost purchases and add to stockpiles. At the same time, consumer spending, which accounts for 70 per cent of the economy, is likely to be restrained by an unemployment rate that's forecast to average 9.8 per cent this year.
"Business equipment investment will continue to make a significant contribution to growth in 2010," Brian Bethune, chief US financial economist at IHS Global Insight in Lexington, Massachusetts, said before the report. "Consumer spending is not expected to energize the recovery in 2010, but rather plod along at relatively subdued rates."
Stock-index futures swung between gains and declines after American International Group Inc.'s bigger-than-forecast quarterly loss overshadowed the GDP report. Economists' Estimates
The economy was forecast to grow at a 5.7 per cent annual pace, the same rate the government initially reported in January, according to the median estimate of 76 economists in a Bloomberg News survey. Estimates ranged from gains of 4.2 per cent to 6.3 per cent.
For all of 2009, the economy shrank 2.4 per cent, the worst single-year performance since 1946.
The GDP report is the second for the fourth quarter and will be revised in March as more information, such as corporate profits, becomes available to the government.
Consumer spending rose at a 1.7 per cent pace, compared with the 2 percent rate forecast by economists and a 2.8 per cent gain in the prior quarter. Spending added 1.23 percentage points to GDP.
Third-quarter purchases received a boost from the government's auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel- efficient vehicles. The plan expired in August.
Household Purchases
Household purchases dropped 0.6 per cent last year, the biggest decrease since 1974.
Increases in production last quarter stemmed the slide in inventories from earlier in the year. Stockpiles dropped at a $US16.9 billion annual pace following a $US139.2 billion decline the previous three months. Inventories declined at a record $US160.2 billion pace in the second quarter.
Today's report showed purchases of equipment and software increased at an 18.2 per cent pace in the fourth quarter, the most since 2000. The gain helped offset a 13.9 per cent drop in commercial construction, leaving total business investment up 6.2 per cent during the final three months of 2009.
A report yesterday showed companies ordered more capital goods in January, driven primarily by bookings for commercial aircraft. Declines in other, less volatile industries indicate business investment may be slowing, according to yesterday's Commerce Department figures.
Job Market
The job market is one part of the economy where a recovery is slow to take hold. Payrolls fell by 20,000 last month after a 150,000 drop in December. The US has lost 8.4 million since the start of the recession in December 2007, the most of any slowdown in the post-World War II era.
The jobless rate fell to 9.7 per cent in January, the Labor Department said on Feb. 5. Unemployment is projected to end the year at 9.5 per cent, according to a Bloomberg survey.
In other areas of the economy, today's report showed a smaller trade deficit, which contributed 0.3 percentage point to fourth-quarter growth. Government spending fell at a 1.2 per cent pace after a 2.6 per cent increase the previous quarter.
Residential construction climbed at a 5 percent rate last quarter after expanding at a 18.9 per cent pace in the previous three months.
Deere, the world's largest maker of farm machinery, posted first-quarter profit this month that topped analysts' estimates and raised its 2010 forecast. Chief Executive Officer Samuel Allen said Feb. 17 that full-year equipment revenue will increase as much as 8 per cent.
'Great Potential'
"Positive developments based on the world's prospects for population and economic growth hold great potential and should help our company," he said in a statement.
Inflation stayed within the Fed's long-term forecast range, today's report showed. The central bank's preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.6 per cent annual pace following a 1.2 per cent increase in the prior quarter.
The GDP price gauge climbed at a 0.4 per cent pace, less than the 0.6 per cent median forecast of economists surveyed.
