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Tepid growth report, but signs of rebound

Despite drags on the economy such as Europe’s debt crisis, an improved job and stock market may boost consumer spending.

Mark DuncaN/Associated Press/File

Despite drags on the economy such as Europe’s debt crisis, an improved job and stock market may boost consumer spending.

WASHINGTON — The US economy grew at a slightly faster but still anemic rate at the end of last year. However, there is hope that growth accelerated in early 2013 despite higher taxes and cuts in government spending.

The economy grew at an annual rate of 0.4 percent in the October-December quarter, the Commerce Department said Thursday. That was slightly better than the previous estimate of 0.1 percent growth. The revision reflected stronger business investment and export sales.

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Analysts think the economy is growing at a rate of around 2.5 percent in the current January-March quarter, which ends this week.

Steady hiring has kept consumers spending this year. And a rebound in company stockpiling, further gains in housing, and more business spending also likely drove faster growth in the first quarter.

The 0.4 percent growth rate for the gross domestic product, the economy’s total output of goods and services, was the weakest quarterly performance in almost two years and followed a much faster 3.1 percent increase in the third quarter. The fourth quarter was hurt by the sharpest fall in defense spending in 40 years.

For all of 2012, the economy grew 2.2 percent after a 1.8 percent increase in 2011 and a 2.4 percent advance in 2010. Since the recession ended in mid-2009, the economy has been expanding at subpar rates as a string of problems from higher gas prices to Europe’s debt crisis have acted as a drag on the US economy.

Growth appears to be strengthening this year even after taxes increased on Jan. 1 and automatic government spending cuts totaling $85 billion started to take effect on March 1.

Employers have added an average of 200,000 jobs a month since November. That helped lower the unemployment rate in February to 7.7 percent, a four-year low.

Economists expect similar job gains in March, in part because a measure of unemployment benefit applications fell this month to a five-year low.

Sales of previously occupied homes rose in February to the highest level in nearly three years, while builders broke ground on more houses and apartments. Annual home prices jumped in January by the most since June 2006, according to a closely watched measure.

All of that, along with higher stock prices, is making consumers feel wealthier, which could lead to more spending. Consumer spending drives 70 percent of economic activity.

The Federal Reserve still thinks the economy needs aggressive measures to bolster growth.

Last week it stood by its plan to keep a key short-term interest rate near zero until unemployment drops below 6.5 percent. The Fed also left unchanged its plan to keep buying $85 billion in bonds until it sees a substantial improvement in the job market.

The government will release its first look at first quarter growth on April 26.

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