The U.S. economy grew at a healthy 3.2 percent rate in the final months of 2013, according to new government data released Thursday morning, providing crucial momentum for the recovery that analysts hope will carry through this year.
The increase in the nation’s gross domestic product is particularly encouraging because it comes after a strong showing during the third quarter that some worried could not be sustained. But the back-to-back gains are likely to shore up confidence that the recovery will not slip away again.
Consumer spending picked up 3.3 percent during the fourth quarter, government data show, despite disappointing holiday results from retailers. The report showed business inventories added less than half a percentage point to GDP in the fourth quarter after accounting for 1.6 percentage points of the previous quarter’s gains. Federal government spending plunged 12.6 percent, while state and local jurisdictions increased spending by a meager 0.5 percent.
Thursday’s solid data should help dispel fears that the recovery is running on fumes. Recent reports showing a sharp slowdown in hiring coupled with disappointing numbers in new home sales and manufacturing have begun to raise questions about the direction of the economy. Meanwhile, investors have been on edge in the face of political turmoil in emerging markets that has spooked the markets.
Those factors were not enough to deter the Fed from continuing to scale back the amount of money it has been pumping into the economy. The central bank said Wednesday that it will reduce its purchases of bonds from $75 billion this month to $65 billion in February, noting that “economic activity picked up” in recent quarters. The Fed said it was also was encouraged by faster growth in household spending and business investment.
The government also reported that GDP for the entire year grew by 1.9 percent. That is slower than 2012’s pace of 2.8 percent and partly a reflection of significant government spending cuts.
