Economy probably gained speed at year end

[January 28, 2011]  WASHINGTON (AP) -- Americans likely spent more freely and U.S. companies sold more abroad, giving the economy solid momentum at the end of last year. That's boosting hopes for a stronger 2011.

Economists expect the government to report Friday that economic growth rose at an annualized rate of 3.5 percent in the October-December quarter.

If they are right, it would show the economy has consistently gained speed since hitting a rough patch in the spring. Growth slowed sharply at that time as Europe's debt crisis hurt sales of U.S. exports and crimped other business activity.

The projected growth would be the strongest since the first quarter of last year when the economy grew at a 3.7 percent pace.

"I think we are finally on a path of sustainable economic growth," said John Silvia, chief economist at Wells Fargo.

Stronger spending by consumers is expected to be the main factor behind the economy's better performance. That's also largely why economists are more optimistic about growth this year. Consumer spending accounts for roughly 70 percent of overall economic activity.

After the recession ended in June 2009, consumers kept spending cautiously. At the end of last year, though, that began to change.

Looking ahead, economists expect consumer spending will rise 3.2 percent or more for all of 2011. That would compare to an anemic 1.8 percent increase expected for 2010.

A cut in workers' Social Security taxes, higher stock prices and wage gains from a slowly healing jobs market should make people feel better about spending, economists said.

For all of this year, the economy is expected to grow 3.2 percent, according to a new AP Economy Survey. That would be stronger than the 2.8 percent growth projected for 2010 and would mark the fastest pace since 2004.

However, all the expected improvements will not be enough to prompt companies to crank up hiring and quickly drive down unemployment.

It takes about 3 percent growth just to create enough jobs to keep pace with the population increase. By some estimates, growth would have to be closer to 5 percent for a full year to drive down the unemployment rate by 1 percentage point.

Economists in the AP Economy Survey predict the unemployment rate will rise to 9.5 percent in January, from 9.4 percent in December. The government releases the January employment report next week. The unemployment rate is expected to drop to 8.9 percent by the end of this year, the survey says.

That would leave unemployment at a high level as President Barack Obama faces re-election in 2012.

In his State of the Union address this week, Obama called for more spending on education, research, technology and transportation to make the nation more competitive and to help generate more jobs. But the president didn't put forward specifics.

"We know what it takes to compete for the jobs and industries of our time. We need to out-innovate, out-educate and out-build the rest of the world. We have to make America the best place on Earth to do business," Obama said.

[Associated Press; By JEANNINE AVERSA]

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