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The U.S. economy grew at an annual rate of 3 percent in the final three months of 2011, the best pace in a year and a half. But that growth has likely slowed in the current quarter.
Businesses have been restocking their shelves at a slower pace and shipping fewer long-lasting manufactured goods. In addition, Europe's debt crisis and slower growth in Asia have reduced demand for U.S. exports.
Stronger hiring in the first two months of the year probably hasn't offset those weaknesses. That's because Americans' pay has barely kept pace with inflation while gas prices have spiked. So consumer spending, which accounts for 70 percent of economic activity, probably hasn't increased much from the end of last year.
Most economists expect growth to pick up later this year, as more hiring lifts the economy.
The Commerce Department on Thursday reported no change its previous growth estimate for the October-December quarter. The 3 percent annual growth rate was the best pace since the spring of 2010. Slower growth in exports than previously estimated was offset by stronger growth in business investment.
Still, economists expect growth has slowed to less than 2 percent in the current quarter.
A key reason for that is businesses aren't restocking their shelves quite as fast as they did at the end of last year. Many slashed inventories over the summer when some feared the economy was on the verge of another recession. When that didn't happen, many stepped up restocking. Inventory building was a key driver of growth in the fourth quarter.
Even though businesses are still replenishing their shelves, the pace has likely slowed and that should weigh on growth this quarter.
Businesses are also investing less in machinery and equipment this year after a tax credit expired at the end of last year. Orders for durable goods plunged in January. While they rebounded in February, the increase didn't offset the entire January decline.
And shipments of core capital goods, which are good measure of business investment plans, grew at a sluggish pace in the three months ending in February, economists said. That will also slow growth in the first quarter.
One bright spot for the economy is that hiring has picked up. The economy has added an average of 245,000 jobs per month from December through February. The unemployment rate has fallen by nearly a full percentage point since the summer to 8.3 percent, the lowest level in three years.
The Labor Department reported Thursday that the number of people seeking unemployment benefits fell to 359,000 last week, its lowest level in four years. That suggests March was another solid month of hiring.
Still, Federal Reserve Chairman Ben Bernanke cautioned that the job market remains weak. He said the mix of strong hiring and modest economic growth is a "puzzle' for economists. Normally, growth normally would need to be roughly 4 percent for a year to lower the unemployment rate by one percentage point, he said Monday in a speech.
For the fourth quarter, consumer spending expanded at an annual rate of 2.1 percent, led by strong gains in car sales. Business investment rose at a 5.2 percent annual rate, pushed higher by companies rushing to make equipment purchases before special investment tax breaks expired at the end of the year. That was nearly double the estimate the government made a month ago.
But this new-found strength was offset by a reduction in the estimate of export growth. U.S. exports grew at an annual rate of 2.7 percent in the fourth quarter, down from an estimate of 4.3 percent a month ago.