The U.S. economy expanded in the fourth quarter at the fastest pace in six years as factories cranked up assembly lines, indicating the recovery may be strong enough to be weaned from government support.
The 5.7 percent increase in gross domestic product at an annual rate reported by the Commerce Department in Washington today exceeded the 4.8 percent median forecast of economists surveyed by Bloomberg News. Separate reports showed consumer sentiment and a barometer of business activity rose more than forecast in January.
The dollar rallied as the data signaled the momentum generated by the world’s largest economy last quarter will carry into the new year. Rising investment in equipment and software is boosting sales at companies including Intel Corp. and may help bring the jobless rate down from close to a 26-year high as employers add staff to meet demand.
“We are getting on to something that is pretty sustainable,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York, who correctly forecast the gain in GDP. “Both consumers and businesses are beginning to increase spending. To get validation, we need to see a return in hiring, which we think we are going to get over the next few months.”
Consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace following a 2.8 percent increase in the previous three months. Economists projected a 1.8 percent gain, according to the survey median. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.
The dollar strengthened 0.7 percent to $1.3867 per euro. the Standard & Poor’s 500 Index fell 0.2 percent to 1,082.33 at 12:10 p.m. in New York after gaining as much as 1.1 percent.
For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946. Household purchases dropped 0.6 percent last year, the biggest decrease since 1974.
Intel, the world’s largest chipmaker, posted its biggest quarterly revenue in more than a year last quarter, a sign the computer industry has emerged from last year’s global recession.
“My expectation for 2010 is that we’re going to see robust unit growth,” Chief Financial Officer Stacy Smith said in an interview this month. “The consumer segments of the market will stay pretty strong, and I do believe we’re going to see a resurgence in PC client sales.”
Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, today’s Commerce Department report showed. the gain helped offset a 15 percent drop in commercial construction, leaving total business investment up 2.9 percent over the past three months.
White House economic adviser Christina Romer said today’s GDP report is “the most positive news to date” on the economy.
Romer, chairman of President Barack Obama’s Council of Economic Advisers, said that while economic growth is a “necessary first step for job growth” the government’s “focus must remain on getting Americans back to work.”
Obama this week said job creation will be the “number one focus in 2010.” Speaking during his first State of the Union address, Obama called on Congress to deliver a new jobs bill to his desk.
Payrolls fell by 85,000 last month after a 4,000 gain in November that was the first increase in almost two years. the U.S. has lost 7.2 million jobs since the start of the recession in December 2007, the most of any slowdown in the post-World War II era. the jobless rate held at 10 percent in December.
The Federal Reserve this week repeated a pledge to keep interest rates low for “an extended period” to bring down unemployment while also raising its assessment of the economy and repeating a decision to end purchases of $1.25 trillion of mortgage debt by March 31. Policy makers said business investment “appears to be picking up.”
Fed Chairman Ben S. Bernanke was confirmed for a second four-year term yesterday by the Senate with record opposition as some lawmakers criticized the central bank for doing more to help Wall Street than average Americans.
A Labor Department report today showed wages and benefits rose 0.5 percent in the fourth quarter, capping their smallest annual increase on record.
Gains in production last quarter stemmed the slide in inventories. Stockpiles dropped at a $33.5 billion annual pace following a $139.2 billion decline the previous three months. Inventories declined at a record $160.2 billion pace in the second quarter.
The expansion is carrying into the new year, a report from the Institute for Supply Management-Chicago inc. indicated today. the group said its business barometer climbed to 61.5, the highest level since November 2005, from 58.7 last month. Readings greater than 50 signal expansion.
A gauge of consumer confidence climbed in January to the highest level in two years. the Reuters/University of Michigan final index of consumer sentiment rose to 74.4 from December’s 72.5.
In other areas of the economy, today’s GDP report showed a smaller trade gap contributed 0.5 percentage point to fourth- quarter growth, while government spending was little changed, dropping at a 0.2 percent pace.
Residential construction climbed at a 5.7 percent rate last quarter after expanding at a 19 percent pace in the previous three months.
Inflation held below the Fed’s long-term forecast. the central bank’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.4 percent annual pace following a 1.2 percent increase in the prior quarter.
The GDP price gauge climbed at a 0.6 percent pace, less than the 1.3 percent median forecast of economists surveyed.
Today’s GDP report is the first for the quarter and will be revised in February and March as more information becomes available.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
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