Preliminary estimate: U.S. GDP grows 2.8% in fourth quarter 2011

U.S. Economic Recovery Slowly Gained Momentum in Late 2011

Preliminary government estimates that the U.S. economy grew 2.8% in the final three months of 2011, propelled by increases in consumer spending and business inventories. The pace of growth was faster than in the third quarter, when gross domestic product expanded at an annual rate of 1.8 percent.

The increase in gross domestic product was the fastest in a year and a half. Even so, the figure was below the average speed of economic expansion in the United States since World War II.

The 2.8 percent rate is likely to be seen as something of a relief, given many economists were predicting the country would soon dip back into recession.

Inventory spending surged to an estimated $56 billion after a $2 billion decline in the third quarter, the Commerce Department reported. Consumer spending rose 2.0%, compared to 1.7% in the third quarter. Exports climbed 4.7% while imports rose 4.4%. Real final sales in the U.S., which exclude imports and inventories, rose just 0.9% after a 2.7% increase in the third quarter.

One of the biggest drags on growth in the last quarter was government spending cuts at the federal, state and local levels, according to the Commerce Department report. Strapped state and local governments are likely to continue cutting back in 2012, as they have done nearly every quarter for the last several years.

Fed Signals To Keep Rates Near Zero Through Late 2014

The Federal Reserve, declaring that the economy would need help for years to come, said Wednesday it would extend by 18 months the period that it plans to hold down interest rates in an effort to stimulate growth.

The Fed planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began in the winter of 2008 into a six-year campaign to increase spending.

Map of S&P downgraded ratings for 9 European countries

Standard & Poor's decision to strip France of its AAA credit rating and downgrade eight other Euro zone countries slammed a continent struggling with a debt crisis and an economic slowdown.

Here is the map of countries affected by the S&P ratings downgraded on Jan. 13. The downgraded ratings range from AA+ for France & Austria to BB for Portugal.

Standard and Poor's Credit Rating Downgraded for 9 Euro Zone Countries on Jan. 13

Credit Ratings Cut for 9 Euro Zone Countries

Standard & Poor’s downgraded the debt ratings of France, Italy and seven other European countries on Friday. The action may have more symbolic than fundamental financial impact but served as a reminder that Europe’s economic woes were far from over. The downgrades may also be a blow to the euro zone’s ability to fight off a worsening debt crisis.

S&P ended France and Austria's AAA status and also downgraded Italy's and Spain's credit rating by two notches and did the same for Portugal and Cyprus. The rating agency also cut ratings on Malta, Slovakia and Slovenia.

In December S.& P warned that it might downgrade many of the 17 nations that share the euro, largely because it said European politicians were moving too slowly to strengthen the monetary union and because the euro zone’s problems were propelling Europe toward its second recession in three years. Read more about S&P cutting credit ratings for 9 Euro Zone Nations.

U.S. sells 10-year notes at record lowest yield

A new landmark was set Wednesday for U.S. Treasury bond supply. The Treasury Department sold $21 billion, 10-year notes at a yield of 1.90%, the lowest level ever at auction. The auctioned yield is the rate the U.S. government pays to borrow cash in capital markets.

The Treasury received bids totaling $69.04 billion and accepted $21.00 billion. Primary dealers were awarded $9.29 billion, while indirect bidders--a category that includes foreign central bankers--were awarded $8.04 billion.

Bidders offered to buy 3.19 times the amount of debt sold, compared to an average of 3.15 times at the last four comparable auctions. Indirect bidders bought 38.3% of the sale, below the average of 46.9% of recent sales. Direct bidders, a group which includes domestic money managers, made up for the shortfall by purchasing another 17.4%, compared to 10% on average.

Central Bank supplied $76.9 billion to Treasury in 2011

The central bank transferred $76.9 billion in earnings to the U.S. Treasury during 2011. The transfer is slightly less than the record $79.3 billion transferred in 2010.

The Federal Reserve said it earned $83.6 billion in interest income from its massive portfolio of securities, which includes Treasury debt and mortgage securities. The Fed has been buying assets as part of a quantitative-easing program, an unconventional monetary policy designed to lower long-term interest rates and boost economic growth.

The transfers in the past two years are about twice the pre-quantitative-easing levels. Under Fed policy, residual Fed earnings are distributed to Treasury after covering expenses.

Unemployment drops to 8.5 percent in December

The unemployment rate is at its lowest level in nearly three years thank to hiring boost in December. The Labor Department says employers added a net 200,000 jobs last month and the unemployment rate fell to 8.5 percent, the lowest since February 2009. The rate has dropped for four straight months. The drop in unemployment rate gave the economy a boost at the end of 2011.

For all of 2011, the economy added 1.6 million jobs, better than the 940,000 added in 2010. The unemployment rate averaged 8.9 percent last year, down from 9.6 percent the previous year.