The US economy grew at a faster than expected 5.7% annual pace in the fourth quarter, the quickest in more than six years.

The first estimate put Q4 gross domestic product growth at its fastest pace since the third quarter of 2003. The economy expanded at a 2.2% annual rate in the third quarter. Analysts had forecast GDP, which measures total goods and services output within US borders, growing at a 4.6% rate in October-December period.

Growth was boosted by a sharp slowdown in the pace of inventory liquidation, a factor that could serve to mask the strength of the economic recovery. However, even stripping out inventories, the economy expanded at an annual rate of 2.2%, accelerating from the 1.5% increase in the third quarter, reflecting relatively strong performance from other segments of the economy.

Business inventories fell only $33.5 billion in fourth quarter after dropping $139.2 billion in the July-September period.

The change in inventories alone added 3.4 percentage points to GDP in the last quarter. This was the biggest percentage contribution since the fourth quarter of 1987.

In the last three months of 2009, consumer spending increased at a 2% annual rate, below the 2.8% recorded in Q3 when consumption received a boost from the government’s car scrappage scheme.
Consumer spending, which normally accounts for about 70% of US economic activity, has been held back by the worst labor market in a quarter century.

Business investment in the fourth quarter grew for the first time since the second quarter of 2008 as the drag from the troubled commercial property sector was offset by robust spending on equipment and software. Business investment rose at a 2.9% rate.

The growth of spending on new home construction slowed sharply in the fourth quarter to an annual rate of 5.7% from an 18.9% pace in the third quarter. Export growth outpaced imports, leaving a trade gap that contributed half a percentage point to GDP growth in the last quarter.

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