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Growth quickens, but speed bumps ahead

28 January 2012 03:16 (UTC +04:00)

Baku-APA. The economy grew at its fastest pace in 1-1/2 years in the fourth quarter, but a rebuilding of stocks by businesses and slower business spending warned of weaker growth in early 2012, APA reports quoting Associated Press.

Gross domestic product expanded at a 2.8 percent annual rate, the Commerce Department said on Friday, a sharp acceleration from the 1.8 percent in the prior three months.

It was, however, a touch below economists expectations in a Reuters poll for a 3 percent rate, and two-thirds of the increase was due to the build-up in business inventories.

Soft underlying demand and a sharp slowing in core inflation supported the Federal Reserve’s decision this week to keep in place an ultra easy monetary policy to nurse the recovery.

"The areas of strength are unlikely to be strong in the current quarter and the areas of weakness are more than likely to be weaker," said Steve Blitz, a senior economist at ITG Investment Research in New York. "Frankly, I don’t think there is an awful lot the Fed can do about it."

On Wall Street the Dow ended down as investors took a dim view of the composition of growth. U.S. Treasury debt prices rose for a third day and the dollar hit a 6-1/2 week low against the euro.

The economy got a temporary boost from the rebuilding of inventories, which logged the biggest increase since the third quarter of 2010.

Excluding inventories, the economy grew at a tepid 0.8 percent rate, a sharp step-down from the prior period’s 3.2 percent pace and a sign of weak domestic demand.

THE POLITICS OF GROWTH

For all of last year, the economy grew just 1.7 percent, and economists expect only a bit of quickening this year.

Sluggish growth could hurt President Barack Obama’s chances of re-election in November, and might lead the Fed to launch a further round of bond purchases to spur the recovery.

"Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability," New York Federal Reserve Bank President William Dudley told reporters.

The central bank on Wednesday said it expected to keep interest rates at rock bottom levels at least through late 2014, and it warned the economy still faced big risks, a suggestion the euro zone debt crisis could still hit hard.

U.S. Treasury Secretary Timothy Geithner on Friday also gave a lukewarm assessment of economy’s prospects.

"We’re still repairing the damage done by the financial crisis. On top of that we face a more challenging world. We have a lot of challenges ahead in the United States," he said at the World Economic Forum in Davos.