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5.7% GDP uptick raises hopes for economic recovery, jobs

WASHINGTON — 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 reported Friday by the Commerce Department exceeded the 4.8 percent median forecast of economists surveyed by Bloomberg News.

Rising investment in equipment and software is boosting sales at companies including Intel and may help bring the jobless rate down from close to a 26-year high as employers increase the staffs to meet demand.

"We are getting on to something that is pretty sustainable," said Bruce Kasman, chief economist at JPMorgan Chase 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."

The expansion is carrying into the new year, a report from the Institute for Supply Management-Chicago indicated Friday. 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.

Consumer spending, which accounts for 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.

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.

Purchases of equipment and software increased at a 13 percent pace in the fourth quarter, the most since 2006, Friday'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 Friday'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."

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 U.S. jobless rate held at 10 percent in December.

A Labor Department report Friday showed wages and benefits rose 0.5 percent in the fourth quarter, capping their smallest annual increase on record.

5.7% GDP uptick raises hopes for economic recovery, jobs 01/29/10 [Last modified: Friday, January 29, 2010 10:44pm]
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