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Meghan Schiller/ MEDILL

The U.S. GDP increased in the fourth quarter but has yet to break into the 3 percent zone that makes economists happy.

U.S. GDP misses economists’ estimates, momentum slows

by Meghan Schiller
Jan 27, 2012

The U.S. economy grew at an annualized rate of 2.8 percent in the fourth quarter, but missed economists' estimates.

The Commerce Department reported Friday that the gross domestic product annual rate increased to 2.3 percent from 2.8 percent in the year-earlier quarter. A 2 percent pickup in consumer spending on cars and home furnishings was not enough to counterbalance government cutbacks, slower business investments, and the increasing trade deficit amidst the European debt crisis.

“This is a disappointment in both economists’ expectation, composition of the number, and in terms of the momentum of the economy,” said Adolfo Laurenti, deputy chief economist at Mesirow Financial Holdings Inc. in Chicago. “We don’t see many elements in the report that say there is momentum in this economy.”

Although its growth rate was weaker than expected, the fourth quarter GDP, or market value of all final goods and services produced, is the fastest pace recorded in a year and a half. Economic growth in the previous three quarters of 2011 fell below 2 percent.

“Business was good but not as good as we expected.” said Laurenti. “This is going to be a problem for the beginning of the year. I expect next quarter the number will be closer to 2 percent if not lower than 2 percent.”

This week a dispute arose between the Obama administration and the Federal Reserve, led by chairman Ben Bernanke. Fed officials vowed to keep near-zero interest rates through 2014, while President Obama says investors won’t bite at the low rates, in effect encouraging an increase in rates to bring a sense of security to the American people.

The Fed believes the unemployment rate, 8.5 percent in December, will remain high.

“The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market,” said the Fed in a statement. “These factors may change over time and may not be directly measurable.”

Some economists agree, saying that the numbers warrant the Fed’s hesitation and only seasonal hiring accounted for an increase in job creation.

“Out of 200,000 new jobs, 40,000 were in transportation,” said Laurenti. “Delivery men hired by FedEx and UPS to deliver Christmas presents with the expectation that many will lose their jobs in January.”

Stocks slipped after the GDP report, pushing pushed the Dow Jones Industrial Average down for the week.