US economic growth will slow on Government spending cuts.
The US economy is growing at a slower pace than expected. Part of the reason is that federal and local governments have started to cut spending, as the raising public debt becoming a Hot issue in the World's largest economy.
US economic growth was revised downward to an annual rate of 2.8% in Q-4 of Y 2010, compared with the estimated pace of 3.2% in January, the US Commerce Department said Friday.
The increase in real Gross Domestic Product (GDP) in Q-4 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 fell 0.2% in Q-4, in contrast to an increase of 8.8% in Q-3.
Real state and local government consumption expenditures and gross investment decreased 2.4%, compared with an increase of 0.7% in Q-3.
Real personal consumption expenditures increased 4.1% in Q-4, stronger than a gain of 2.4% in Q-3. However, real nonresidential fixed investment growth slowed to a 5.3% in Q-4 from a 10% rise in Q-3.
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 F-Y federal budget stalemate.
Democrats who control the Senate have rejected a bill passed by the House of Representatives last week to fund the government through the end of the 2011 F-Y ending on September 30 by cutting more than US$61B.
Experts held that the government belt-tightening moves would have a drag on the US economic recovery this year, as many US 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% this year, noted a latest analysis report from the global investment company Goldman Sachs (NYSE:GS).
Moreover, economists held that the Friday GDP report signaled caution on emerging inflationary pressure in the nation.
The Price Index for gross domestic purchases, which measures prices paid by US residents, rose 2.1% in Q-4 of last year, much quicker than a 0.7% increase in Q-3, the report said.
Excluding food and energy prices, the price index for gross domestic purchases rose 1.2% in Q-4, compared with an increase of 0.4% in Q-3.
Some economists believed recent price up-tick boosted by Global energy price rise would cut into US businesses' profit margins, dampen some entrepreneurs' hiring enthusiasm, and harm the economic recovery in the end.
US real GDP grew 2.8% in 2010 Y-Y, after declining by 2.6% in Y 2009 hit by the longest economic downturn in decades.
Experts including US Federal Reserve Chairman Ben Bernanke beleive that the high unemployment rate and deteriorating fiscal position still remained big challenges for the US economy.-Paul A. Ebeling, Jnr. www.livetradingnews.com