Fourth-quarter economic growth revised downward
Economic growth for the final three months of last year was revised downward to an annualized rate of 2.8% by government statisticians Friday, another indication of the struggling recovery from the recession as turmoil in the Middle East threatens further problems.
The Commerce Department had previously estimated that the nation's economic output, or gross domestic product, for the fourth quarter of 2010 had been 3.2%. That figure was a significant improvement over the 2.6% annualized growth rate in the third quarter of the year.
The new figure of 2.8% for the fourth quarter is barely better than the previous quarter, showing the difficulty the nation's economy is having in getting rolling after the deepest recession since the Great Depression. Unemployment remains high, at 9% in January, and economists said annualized growth around 3% is not enough to help the economy replace the more than 8 million jobs it lost.
"It doesn't mean the economy will fall apart, but it takes some steam out of the economy regaining momentum," said Diane Swonk, chief economist at Mesirow Financial. "It just takes more meat off the plate of a hungry U.S. economy."
The revision is based on more complete economic data than was available when the advance estimate was made last month, according to the Commerce Department's Bureau of Economic Analysis. The lower figure was caused in part by reduced spending by state and local governments, which have been slashing budgets as federal stimulus aid has run out and deficits rise.
The drop also was fueled by lower consumer spending as the impact of rising oil prices began affecting the economy at the end of last year, Swonk said.
"The minute oil prices go up, consumers make trade-offs," she said. "Oil prices were moving up ahead of the spike we’ve already seen, and that started to show up in consumer spending."
Escalating unrest in the oil-producing Middle East will add to the problem, she said, noting that even if Saudi Arabia makes up for the supply lost from countries such as Libya, oil prices will remain high as investors fret over the volatile situation.
"The problem is not going to be supplies, but the risk premium priced into oil as people worry about what's happening in the Middle East," she said.
-- Jim Puzzanghera