Timothy R. Homan
The economy in the U.S. grew at a 3 percent annual rate in the last three months of 2011, the same as previously estimated, while corporate profits climbed at the slowest pace in three years, raising the risk that business investment and hiring will cool.
The increase in gross domestic product was the biggest in more than a year and followed a 1.8 percent gain in the prior period, revised figures from the Commerce Department showed in a Thursday report issued in Washington. Company earnings were up 0.9 percent from the third quarter, the smallest advance since the last three months of 2008.
While the report showed business spending on new equipment and software climbed more than previously estimated, figures this month indicate outlays are slowing following the expiration of a government tax credit. Consumers could be poised to take a leading role in the expansion as the biggest increase in employment since 2006 gives households the confidence and means to spend.
“We’ve got more momentum in consumer spending than on the business side,” Brian Jones, a senior U.S. economist at Societe Generale in New York, said before the report was issued.
The gain in GDP matched the median estimate of 84 economists surveyed by Bloomberg News. Forecasts ranged from 1.5 percent to 3.9 percent. The world’s largest economy expanded 1.7 percent for all of 2011, down from 3 percent a year earlier.
Consumer spending grew at a 2.1 percent annual rate, the same as previously estimated, the report showed. A bigger gain in purchases of goods was offset by the smallest increase in spending on services in two years.
Demand has continued to grow this quarter. Sales of cars and light trucks climbed to a 15 million annual rate in February, the best showing since February 2008, according to data from Ward’s Automotive Group.
Figures to be released today from the Commerce Department are projected to show purchases rose 0.6 percent in February, the biggest gain in five months, according to a Bloomberg survey median.
An improving job market could be one reason consumers have the confidence to shop. Employers added 227,000 workers in February, capping the best six-month gain in payrolls since 2006. The unemployment rate held at a three-year low of 8.3 percent, Labor Department data showed this month.
More income and a strengthening labor market are giving households the wherewithal to make big-ticket purchases, benefiting companies like motor-home maker Winnebago Industries Inc.
“We’re beginning to see positive signs that the economy is improving,” Randy Potts, chief executive officer, said on a March 15 conference call.
While encouraged by the drop in unemployment, Federal Reserve Chairman Ben S. Bernanke said this week the central bank needs to keep interest rates low to sustain the recovery and make additional progress.
Reducing joblessness further will probably require a quicker expansion of business production and consumer demand, which “can be supported by continued accommodative policies,” he told a group of business economists on Monday. In an interview with ABC News anchor Diane Sawyer a day later he said that unemployment remains too high, that the economic recovery isn’t assured and that central bankers haven’t ruled out doing more to boost growth.
Corporate profits last quarter rose by $16.8 billion from the previous three months to $1.99 trillion. Earnings were up 7 percent from the same time last year, the smallest year-over-year gain since the second quarter of 2009.
The slowdown in profits could reflect a cooling in worker productivity, which has boosted expenses. For all of 2011, output per hour climbed 0.4 percent, the smallest gain since 1995, figures from the Labor Department showed earlier this month. Labor expenses adjusted for efficiency increased 2 percent last year, the most since 2008.
Business investment for last quarter was revised up. Corporate spending on equipment and software rose at a 7.5 percent annual rate, compared with the 4.8 percent estimated last month. It climbed at a 16 percent pace in the prior quarter.
Shipments of capital goods excluding aircraft and military gear, used in calculating GDP, rose 1.4 percent in February, making up for less than half the 3 percent drop at the start of the year, Commerce Department data showed.
“It looks as though business investment outlays are continuing to grow at a much more modest pace compared to earlier in the recovery,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said in a note to clients Wednesday.
A smaller gain in exports than previously estimated held back growth last quarter, the GDP report showed. The trade gap was $410.8 billion in the last three months of 2011, compared with a prior estimate of $404.4 billion.