Economy Expands Less Than Expected in 4Q

The U.S. economy grew slower than initially estimated in the fourth quarter as government investment contracted more sharply and consumer spending was less than expected.

Gross domestic product growth was revised down to an annualized rate of 2.8%, the Commerce Department said in its second estimate, from 3.2%.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 3.3% pace. The economy expanded at a 2.6% rate.

The report confirmed the Federal Reserves concerns that the pace of growth remained too slow to significantly lower a 9.0% unemployment rate.

The government revised fourth-quarter growth to reflect a steeper contraction in government spending than previously estimated. Government spending declined at a 1.5% rate.

In addition, consumer spending -- which accounts for more than two-thirds of U.S. economic activity -- grew at a 4.1% rate in the final three months of 2010 instead of 4.4%. It was still the the fastest since the first three months of 2006 and was an acceleration from the third quarters 2.4% rate. But there are concerns that surging crude oil prices.

The government revised business investment up, though spending on equipment and software was lower. Business spending increased at a 5.3% rate instead of 4.4%.

Business inventories subtracted 3.70 percentage points from GDP growth, unrevised from last month. Business inventories increased $7.1 billion instead of the $7.2 billion estimated last 1836019316

Excluding inventories, the economy expanded at a 6.7% pace rather than 7.1%. It still marked the biggest increase in domestic and foreign demand since 1998. In contrast, exports were revised higher, but the upward revision to imports was even greater. Trade added 3.35 percentage points to GDP growth instead of 3.44 percentage points.

The report confirmed a pick-up in inflation pressures on surging food and gasoline prices. The personal consumption expenditures (PCE) index rose at an unrevised 1.8% rate.

But a "core" price index closely watched by the Fed advanced at a revised 0.5% rate instead of 0.4%.