Economic Watch: GDP Advances at Annual Rate of 3.2% for Quarter

The U.S. economy expanded at a healthy pace in the final quarter of last year amid a big jump in consumer spending.

New U.S. Commerce Department figures show this measure of the total output of the nation’s goods and services increased at an annual rate of 3.2%, following a 4.1% gain in the third quarter of last year, marking the best back-to-back performance since the end of 2011 and the start of 2012.

Consumer spending in the fourth quarter of 2012 increased 3.3%, its best number since 2010. Exports were up 11.4%, double the gain in the earlier quarter.

Overall GDP growth would have been higher had it not been for a 12.6% decline in federal government spending, subtracting an estimated full percentage point from the overall fourth quarter annual rate.

For all of 2013 the U.S. economy expanded at an annual rate of 1.9%, compared to an annual rate of 2.8% in 2012. However, when last year’s performance is divided between the first and second halves of the year, the rate of expansion was 3.7% in the second six months versus 1.8% in the first half, marking the strongest second-half performance since 2003.

This new report is the first of three estimates from the Commerce Department regarding the fourth quarter GDP, with the next one set for release a month later.

Lindsey Piegza, chief economist with the investment firm Sterne Agee, characterized it as “ relatively strong end of the year growth report.

“Despite slow job creation and stagnant income growth, consumers continued to spend through the end of the year thanks to equity market highs, certainty in Washington and early energy price reprieve," Piegza said. "But while consumers may have been feeling more optimistic, filled with holiday spirit, businesses were much less cheerful and pulled back at year end."

She said despite what appeared to be a loosening of corporate purse strings in the third quarter, investment slowed noticeably in the final quarter of the year, suggesting an increasingly cautious outlook from many small businesses and investors as we move further into the new year.