U.S. economic growth prospects dim on gov't spending cuts

13:29, February 26, 2011      

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The U.S. economy was growing at a slower pace than expected, as the federal and local governments started to slash spending with the spiking public debt becoming a hot-button issue in the world's largest economy.

U.S. economic growth was revised downward to an annual rate of 2.8 percent in the fourth quarter of 2010, compared with the estimated pace of 3.2 percent in January, the Commerce Department announced Friday.

The increase in real gross domestic product in the fourth quarter primarily reflected positive contributions from personal consumption expenditures, exports, and nonresidential fixed investment that were partly offset by negative contributions from private inventory investment as well as state and local government spending, the department said in a report.

Figures showed that real federal government consumption expenditures and gross investment decreased 0.2 percent in the fourth quarter, in contrast to an increase of 8.8 percent in the third quarter.

Real state and local government consumption expenditures and gross investment decreased 2.4 percent, compared with an increase of 0.7 percent in the third quarter. Real personal consumption expenditures increased 4.1 percent in the fourth quarter, stronger than a gain of 2.4 percent in the third quarter. However, real nonresidential fixed investment growth slowed to a 5.3 percent in the fourth quarter from a 10 percent rise in the third quarter.

With only about a week left before federal spending runs out on March 4, Democratic and Republican parties have not achieved a compromise and put an end to the 2011 fiscal year federal budget stalemate.

Democrats who control the Senate have rejected a draconian bill passed by the House of Representatives last week to fund the government through the end of the 2011 fiscal year ending on Sept. 30 by cutting more than 61 billion dollars spending.

Experts held that the government belt-tightening moves would have a more obvious drag on the U.S. economic recovery this year, as many U.S. entrepreneurs, small business owners in particular, were still reluctant to invest and hire. The private sector cannot revive a faltering economic recovery without government spending.

The dramatic spending-cut bill passed by the House would slow economic growth by nearly 2 percent this year, noted a latest analysis report from the global investment company Goldman Sachs.

Moreover, economists held that the Friday GDP report signaled caution on emerging inflatinary pressure in the nation.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose 2.1 percent in the fourth quarter last year, much quicker than a 0.7 percent increase in the third quarter, the report said. Excluding food and energy prices, the price index for gross domestic purchases rose 1.2 percent in the fourth quarter, compared with an increase of 0.4 percent in the third quarter.

Some economists believed recent price uptick boosted by global energy price surge would cut into U.S. businesses' profit margins, dampen some entrepreneurs' hiring enthusiasm, and harm the nascent economic recovery in the end.

U.S. real GDP grew 2.8 percent in 2010 year on year, after declining by 2.6 percent in 2009 hit by the longest economic downturn in decades. But experts including Federal Reserve Chairman Ben Bernanke held that the stubbornly high unemployment rate and deteriorating fiscal position still remained big challenges for the economy.

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