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US Q4 growth disappoints, problems seen ahead

US Q4 growth disappoints, problems seen ahead
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The US economy expanded at its fastest pace in one and a half years in the fourth quarter of 2011.

It was up by 2.8 percent from the same period a year earlier; that was slightly below economists expectations for a 3.0 percent growth rate.

However the latest government figures do show a big increase in inventories by businesses and weak spending on capital goods which hinted at slower growth in the early part of this year.

Indeed nearly two percentage points of that growth came from a build-up in business inventories.

For the whole of last year the US economy grew 1.7 percent after expanding 3.0 percent in 2010.

The state of the US economy is a major political focus with elections due in November.

President Barack Obama knows — as his Treasury Secretary Timothy Geithner said on Friday at the World Economic Forum in Davos — that the US economy still faces big challenges and his re-election prospects depends on that.

Economists have said a sustained growth pace of at least three percent is likely needed to make noticeable headway in absorbing the unemployed and those who have given up the search for work.

Around 23.7 million Americans are either out without a job or underemployed and the jobless rate stands at 8.5 percent.

One day before the latest growth figures were released, Ben Bernanke, the chairman of the US central bank the Federal Reserve, said he is considering further stimulus measures.

In one hopeful sign consumer spending, which accounts for about 70 percent of US economic activity improved in the fourth quarter.

It rose to a 2.0 percent rate from the third-quarter’s 1.7 percent pace but largely driven by pent-up demand for motor vehicles.

Despite an anticipated slowdown in growth this year, analysts do not believe the economy will fall into recession. “The United States has enough momentum to offset the losses coming from Europe,” said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago.