US growth estimate in surprise downward revision

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Snow in Washington DC
Image caption,
Consumer spending added to growth during the quarter, despite the cold weather

The US Department of Commerce has unexpectedly cut its estimate of fourth-quarter growth to an annualised 2.8%, from 3.2% previously.

Analysts had instead expected the figure to be revised up slightly to 3.3%.

Lower government spending than previously estimated was the main reason for the downward revision.

Economic growth for the whole of 2010 was also revised down slightly, from 2.9% to 2.8%.

As well as lower state and local government spending during the final three months of last year, consumer spending grew at a slower rate than previously estimated.

Despite the downward revision, Wall Street gained ground in early trading, with the Dow Jones index rising 42 points to 12,110 as the price of oil retreated from the two-and-a-half year highs seen on Thursday.

The latest figure for final-quarter growth is the second estimate - the figure will be revised again next month.

Revised figures also released on Friday showed that the UK economy shrank by 0.6% in the fourth quarter compared with the original estimate of a 0.5% contraction.

By way of comparison, on a non-annualised basis, the US growth figures were revised from 0.8% to 0.7%.


Despite the downward revision, US economic growth still picked up in the final quarter, as growth in the previous quarter was 2.6%.

A rise in consumer spending contributed to the growth, as did falling imports, rising exports and a rise in commercial real estate.

There are widespread concerns in the US that economic growth is not strong enough to bring down the high unemployment rate, which currently stands at 9%.

Earlier this month, Federal Reserve Chairman Ben Bernanke estimated it would take about 10 years for the unemployment rate to fall to a more sustainable 5%-6% at current economic growth rates.

The latest GDP revision figures could raise questions about future growth, analysts said, given the government's plans to cut spending in order to bring down the country's large budget deficit.

President Obama has outlined plans to cut $1.1tn (£620bn) from the deficit over the next 10 years.

The deficit - the amount by which government expenditure exceeds its income in any given year, expressed as a percentage of GDP - currently stands at 9%.

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