Washington, DC, January 31, 2007--The economy shook off a summer slump and surged ahead at a faster-than-expected 3.5% annual growth rate in the fourth quarter, the Commerce Department estimated Wednesday.
Fed by robust consumer spending, a drop in energy prices and big turnaround in the trade balance, the economy notched its highest growth in a year, offsetting the drag of the weak housing and auto sectors.
The 3.5% growth rate was much stronger than the 2% recorded in the third quarter, and handily beat the 3% expected by economists.
Consumer prices fell 0.8% annualized in the quarter, the first quarterly decline in 45 years and the biggest drop in 52 years.
The core personal consumption expenditure price index, which excludes food and energy prices, rose 2.1%, slightly above the Federal Reserve's 1% to 2% comfort zone. Core inflation has risen 2.3% in the past year, down from 2.4% in the third quarter. Market-based core inflation rose 1.7% in the quarter.
Final sales of domestic product rose 4.2%. Final sales to domestic purchasers increased 2.4%.
Disposable personal incomes rose 5.4% annualized, with the personal savings rate improving to a negative 1% from 1.2% the previous quarter.
For all of 2006, the economy grew 3.4%, after growing 3.2% in 2005 and 3.9% in 2004.
In the fourth quarter, consumer spending rose at an annual rate of 4.4% after 2.8% in the third quarter. Spending on durable goods increased 6%, spending on nondurable goods rose 6.9% and spending on services increased 2.9%.
Consumer spending contributed 3.05 percentage points to growth.
Residential investments fell 19.2%, the largest drop since 1991. Housing subtracted 1.2 percentage points from growth.
Business fixed investment fell 0.4%, the biggest drop in nearly four years. Investments in equipment and software dropped 1.8%, while investments in structures rose 2.8%. Business investments subtracted 0.05 percentage points from growth
The change in inventories subtracted 0.71 percentage points from growth.
Production of motor vehicles subtracted 1.17 percentage points from growth after adding 0.76 percentage points in the third quarter. Final sales of computers added 0.25 percentage points to growth.
Exports increased 10% and imports fell 3.2% in the quarter. The improvement in the net trade position contributed 1.64 percentage points to growth, the biggest contribution in 10 years.
Government spending rose 3.7%, including an 11.9% jump in defense spending, the biggest increase since the beginning of the war. Government spending contributed 0.7 percentage points to growth.
