Our Terms of Service and Privacy Policy have changed.

By continuing to use this site, you are agreeing to the new Privacy Policy and Terms of Service.

GDP report: Economic growth revised sharply lower

chart_gdp_022511.top.gif By Annalyn Censky, staff reporter


NEW YORK (CNNMoney) -- Budget cuts by state and local governments hurt the economy more than originally thought, according to a government release Friday.

Gross domestic product, the broadest measure of economic activity, was revised lower to an annual growth rate of 2.8% in the three months ending in December. The initial reading had been for a 3.2% growth rate in the period.

That's a surprising dip, given that economists were expecting the rate to be revised upward to 3.3%.

Lower state and local government spending was the main drag, falling 2.4% during the quarter, compared to a 0.9% drop originally reported.

Consumer spending was also weaker than initially reported, and was revised down to a 4.1% growth rate, from 4.4%.

The lower GDP number isn't a reason to be alarmed, economists say.

"It's kind of ancient history, given we're now two-thirds into the first quarter," said Paul Ashworth, chief U.S. economist with Capital Economics. "If anything, we still expect growth to be stronger in the first quarter."

Despite its weaker points, the report still contained a robust reading on domestic demand, and that's encouraging, said David Resler, chief economist with Nomura Securities.

Real final sales of domestic product grew at a rate of 6.7% during the quarter. While that's slightly lower than the 7.1% previously estimated, it's still strong, especially given that the rate stood at a mere 0.9% in the third quarter.

"It's a sign to me that demand has turned a corner in the fourth quarter," Resler said. "The private sector seems to be on a roll here, and we're seeing evidence of that through most other economic indicators."

The government calculates GDP as a measure of goods and services produced in the United States. The number is backward looking and is often revised multiple times. This is the second reading for the fourth quarter. To top of page

Index Last Change % Change
Dow 15,973.84 313.66 2.00%
Nasdaq 4,337.51 70.67 1.66%
S&P 500 1,864.78 35.70 1.95%
Treasuries 1.75 0.10 6.33%
Data as of 2:31pm ET
Company Price Change % Change
Bank of America Corp... 11.95 0.79 7.08%
General Electric Co 28.26 0.81 2.95%
Cisco Systems Inc 25.11 0.43 1.74%
Chesapeake Energy Co... 1.59 -0.19 -10.67%
Freeport-McMoRan Inc... 5.53 0.64 13.09%
Data as of Feb 12
Sponsors

Sections

Investors need someone they can bring home to mother instead of bad boys (or girls) that may make their heart beat faster. Boring beats bold in this market. Here are 10 dependable stocks we love. Southwest (ticker symbol: LUV) is one. More

Cheap oil and slow global growth may not be the only culprits of the global market turmoil. There's growing concern that central banks are spooking the markets too. More

Eastern Illinois University laid off 198 staff members this week, and the college president is blaming the state government. More