Summary
The economy continued to expand at a solid pace in the final quarter of 2006, as the continued weakness in residential investment was more than offset by significant strength in real consumer spending and a reduction in the net export deficit in the fourth quarter. Consumer spending posted a robust 4.4% annualized increase, up sharply from the 2.8% pace in the third quarter. Growth in real public sector spending rose in the fourth quarter, up an annualized 3.7%. Fluctuations in energy prices have been the key factor behind changes in the overall inflation rate over the past several months and were instrumental in the decline in overall prices in the fourth quarter of 2006. The labor market finished 2006 on a strong note and data suggest employment remained firm at the start of 2007. The unemployment rate is low and workers have achieved solid gains in real hourly earnings.
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Extract
Profile of the Economy
[Source: Office of Macroeconomic Analysis]
Real gross domestic productThe economy continued to expand at a solid pace in the final quarter of 2006, as the continued weakness in residential investment was more than offset by significant strength in real consumer spending and a reduction in the net export deficit in the fourth quarter.January's advance estimate of real gross domestic product (GDP) reported annualized growth accelerated to 3.5 percent in the fourth quarter of 2006, following a 2.0 percent gain in the third quarter. This brought real GDP growth to 3.4 percent over the four quarters of 2006. Since the second quarter of 2003, quarterly growth has averaged 3.6 percent.Consumer spending posted a robust 4.4 percent annualized increase, up sharply from the 2.8 percent pace in the third quarter. Declining spending on motor vehicles and parts was partially offset by a pickup in spending on computers. Spending in the remaining nondurable goods and in the services sectors contributed a combined 2.6 percentage points to GDP growth. For the four quarters of 2006 consumer spending was up 3.2 percent.Investment in business equipment and software edged down by 1.8 percent in the fourth quarter after a 7.7 percent gain in the third. Average growth for all four quarters of 2006 for this volatile series was 5.0 percent. A 19.2 percent annualized rate of decline in residential investment spending extended a four quarter string of negative readings in residential building, and redu...See the full content of this document
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