GDP Nudges Up at 4.1 Percent Rate in 4th Quarter

The U.S. economy grew a touch faster at the end of last year than first thought, but still notched only half of the third quarter's sizzling pace as consumer spending eased, the government said on Friday.

Despite the slowdown, the year closed with the strongest back-to-back quarters since the first half of 1984.

U.S. gross domestic product (search), a broad measure of the nation's economic health, rose at a 4.1 percent annual rate in the fourth quarter, just above the 4 percent gain initially reported a month ago, the Commerce Department said.

Economists on Wall Street had expected GDP growth to be lowered to 3.6 percent, in part because imports were stronger than first estimated.

Markets largely shrugged off the report.

While solid by historic standards, the pace of growth in the final three months of last year marked a sharp slowdown from the 20-year-high 8.2 percent rate logged in the third quarter.

The slower pace in the October-December period came as consumers curbed their spending after splurging in the third quarter, when pocketbooks were fattened with tax cuts. Spending on big-ticket durable goods fell 0.1 percent, the first quarterly decline in over three years.

The department said it nudged up the fourth-quarter GDP reading because business spending on equipment and software was more robust than first thought, firms added to inventories at a faster pace and exports were stronger.

Those changes were just enough to offset the drag from greater imports, which subtract from growth.

"In short, a solid quarter, especially in the light of the tax cut-fueled surge in (third quarter) activity," said Ian Shepherdson, chief U.S. economist at High Frequency Economics (search).

Shepherdson said the bump up in equipment and software spending to a 15.1 percent gain from the 10 percent reported earlier is what caught economists by surprise.

The adjustment led to an upward revision to overall capital spending growth, despite a bigger falloff in spending on structures than first thought.

Capital spending rose at a robust 9.6 percent pace, a third straight quarterly increase. A business spending collapse pulled the economy into recession in 2001, and the turnaround has fed expectations of a sustained economic expansion.

A recovering U.S. economy sucked in imports at a 16.4 percent annual pace in the fourth quarter, well above the 11.3 percent rate first reported. It was the strongest reading on imports since the second quarter of 2002.

Helped by a weaker dollar, exports also turned in a strong performance, rising at a revised 21 percent rate, a couple notches above last month's estimate and the biggest jump in seven years. Overall, though, the trade gap widened, weighing on the economy.

Despite the step up in growth over the second half of last year, hiring has remained anemic. But economists look for GDP growth above 4 percent this year and expect payrolls to begin rising more robustly soon.

Federal Reserve Chairman Alan Greenspan (search) told Congress earlier this month that prospects were good for strong growth this year.

"Last year appears to have marked a transition from an extended period of sub-par economic performance to one of more vigorous expansion," he said. "Looking forward, the odds of sustained robust growth are good, although as always, risks remain."