The U.S. economy grew at a moderate 3.2% annualized pace in the fourth quarter, according to the Bureau of Economic Analysis. This rate made it the strongest quarter since the first and was significantly better than the second quarter's 2.6% growth. Yet, last quarter's pace failed to meet expectations of 3.5% growth. So despite the improvement, the market wanted more. The quarter's growth was due mostly to stronger consumer spending and net exports, but occurred in spite of relatively flat business activity and a decline in government spending.
First, since the fourth quarter provides a full year's worth of data, we also know that 2010's GDP growth was 2.9% -- the most since 2005. Here's GDP growth for the past decade:
In fact, 2.9% looks pretty good from this historical perspective, as it was only beaten in the above period during the years 2004 and 2005. Of course, coming out of a recession, GDP growth tends to be magnified. Once the economy fully stabilizes, the trick will be maintaining a brisk rate of growth.
Now let's turn to what happened in the fourth quarter. Here's a chart showing how it stacks up against the recent past:
As with the annual rate, the quarterly rate also looks relatively good. It was only beaten by two quarters shown above, the last of 2009 and the first of 2010. Let's break down where this growth came from by looking at the economy's various components.