U.S. economy grew at 5.7% rate in Q4

The U.S. economy grew at a stronger-than-expected 5.7 per cent annual rate for a second straight quarter from October through December, the Commerce Department reported Friday.

That was its fastest pace since the third quarter of 2003 and the strongest evidence to date that the worst recession since the 1930s ended last year, though an academic panel that assesses recessions has yet to officially declare an end to it.

Exports soared 18.1 per cent, outpacing the strong gain in the previous quarter, as global demand grew and the U.S. dollar weakened against many currencies. Domestic demand weakened a bit to 1.7 per cent.

"However, the underlying rate of consumer spending, though still soft, looks to have picked up," BMO Capital Markets economist Sal Guatieri said in a commentary.

While the most recent quarter's growth rate "isn't sustainable" as consumers try to bring down their debt, said Guatieri, "the advance in exports, personal consumption and business capital spending points to some positive momentum in the economy."

"First-quarter GDP growth should top 3%," he predicted, "further distancing the economy from the Great Recession, and encouraging firms to resume hiring."

The two straight quarters of growth last year followed a record four quarters of economic decline. Still, the growth at the end of last year was primarily fuelled by companies refilling depleted stockpiles, a trend that will soon fade.

No effect on interest rates expected

Still, the strong growth report won't be enough convince the U.S. Federal Reserve to accelerate its timing of interest rate increases, predicted Ian Pollick, economics strategist with TD Securities.

"The realization that the pace of growth was outsized due to one-off factors [such as the swing in inventories] should not substantially alter the timing of rate hikes, which we continue to expect will begin in [the first three months of 2011]."

Pollick also pointed out that last quarter's GDP number could end up being revised to a lower number. That happened when the third quarter rate was knocked down to 2.2 per cent from its original 3.5, as the Commerce Department received more definitive data.

"While we don't expect Q4 to be revised substantially lower, it is not inconceivable," said Pollick.

The report also provides an upbeat end to an otherwise dismal year: The nation's economy declined 2.4 per cent in 2009, the largest drop since 1946.