WASHINGTON (AP) — The economy grew at a slightly faster pace in the final three months of last year, and Americans earned more income than previously reported. That could set the stage for stronger growth this year.
The Commerce Department said Wednesday that the economy expanded at a 3 percent annual rate in the October-December quarter — the fastest pace since the spring of 2010. It exceeded the previous estimate of 2.8 percent, and it was better than the third quarter’s 1.8 percent growth rate.
Economists cautioned that growth is likely slowing in the current quarter as companies spend less on restocking their warehouses. Most of the growth in the fourth quarter was driven by businesses rebuilding their stockpiles. They aren’t likely to add as much to inventories now.
The growth estimate for the October-December quarter was revised up because consumers spent more than first thought, and businesses cut spending by much less. Imports rose by a smaller amount.
The report also showed that incomes rose in the second half of last year by more than previously estimated. Americans saved more, too.
Income growth is crucial. Economists have worried that recent gains in consumer spending weren’t sustainable without more pay. Higher incomes also make it easier for Americans to pare debts.
Economists say that the higher income makes it more likely that consumers will keep spending this year, even in the face of higher gas prices. That’s likely to result in modest growth of about 2 percent in the current quarter and about 2.5 percent for all of 2012.
“The consumer is in a better position to weather higher gasoline prices than appeared to be the case prior to these revisions,” said Joshua Shapiro, chief economist at MFR Inc., in a note to clients.
After taxes, inflation-adjusted incomes rose 1.4 percent in the fourth quarter. That figure is nearly double the first estimate.
And in the third quarter, incomes rose 0.7 percent, compared with earlier estimates of a 1.9 percent drop.
The savings rate was also revised higher. Americans saved 4.5 percent of their incomes in the October-December quarter. That figure was down slightly from the third quarter, but it topped the previous 3.7 percent estimate for the fourth quarter.
Consumer spending rose 2.1 percent in the fourth quarter, powered by a jump in spending on autos and other long-lasting goods. That’s an improvement from the third quarter, and it’s much better than spending during the spring, when high gas prices nearly brought consumer spending to a standstill.
Economists predict growth at an annual pace of 2 percent in the January-March quarter, according to a survey by the National Association of Business Economics. Growth will reach 2.4 percent for the full year, up from 2011’s increase of 1.7 percent, the survey found.
A host of recent data has made many analysts more optimistic about this year’s prospects. Companies have stepped up hiring, pushing the unemployment rate down for five straight months to 8.3 percent.
U.S. factories boosted output last month and December was their strongest month of growth in five years. Consumer confidence rose to its highest point in a year this month, the Conference Board reported Tuesday. That could signal Americans are ready to step up spending, which would fuel more growth. Consumer spending accounts for 70 percent of economic activity.