US economy climbs 2.8 per cent, less than expected

Jan 27, 2012, 15:47 GMT

Washington - US gross domestic product (GDP) grew less than forecast in the fourth quarter as consumers boosted spending and government agencies cut back on spending.

GDP, the value of all goods and services produced, grew at 2.8 per cent, according to an advance estimate released Friday by the Bureau of Economic Analysis (BEA), although economists had predicted a 3-per-cent rise.

For all of 2011, the US economy increased 1.7 per cent, down from 3 per cent a year earlier.

US Federal Reserve officials said earlier this week that they were concerned about the economy's lack of gumption two years after the end of the worst recession in decades.

The improvement in the US job market - the jobless rate dropped to 8.5 per cent last month from 8.6 per cent - has yet to translate into wage gains large enough to spur bigger gains in household spending, which accounts for 70 per cent of the US economy.

US consumer spending climbed 2 per cent in the fourth quarter, virtually unchanged from the previous quarter's 1.7 per cent increase. Economists had predicted a 2.4 per cent per cent rise.

Government agencies also struggled last quarter as they cut spending at a 4.6 per cent annual rate. For all of 2011, government spending dropped 2.1 per cent, the biggest decline since 1971.

On a brighter note, growth was the fastest since the second quarter of 2010 and showed that the US has so far weathered the storm of the eurozone debt crisis.

The world's largest economy may also outperform Japan and the 17-nation eurozone. The International Monetary Fund earlier this week predicted the US economy would climb 1.8 per cent in 2012, compared with a mild recession in Europe and a 1.7 per cent rise in Japan.