Forex News – US economy grows less than forecast

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The United States Gross Domestic Product (GDP) rose from October through December 2011 at its fastest rate in a year and a half, showing that the US economy grew 2.8 percent in the fourth quarter but trailed forecasts.

The main driver behind the expansion at the end of last year was an increases in consumer spending and business inventories, according to the US Commerce Department on Friday.

The 2.8 percent increase follows a 1.8 percent gain in the prior third quarter, but came in slightly lower than the forecast for a 3 percent increase.

Due to missing expectations, markets reacted negatively and pushed risk assets down. Euro dipped against the dollar immediately after the data at 13:30 GMT, falling from 1.3147 to 1.3092 before recovering some losses to trade back up to 1.3126 by 14:35 GMT.

The GDP report shows that consumer spending rose 2 percent in the fourth quarter, little changed from the 1.7 percent gain in the prior three months. Economists projected a 2.4 percent increase. These figures are disappointing since consumer spending accounts for at least two-thirds of US economic growth.

Also inventory rebuilding and weak spending on capital goods hints at slower growth in early 2012.