Robust household spending and rising exports kept the US economy on solid ground in the fourth quarter, but stagnant wages could chip away some of the momentum in early 2014.
Gross domestic product grew at a 3.2% annual rate, the US Commerce Department has said, in line with expectations.
While that was a slowdown from the third-quarter's brisk 4.1% pace, it was a far stronger performance than earlier anticipated.
The figures will also be welcome news in light of a 0.3% drag from October's partial government shutdown and a much smaller contribution to growth from a restocking by businesses.
Earlier in the quarter many economists were anticipating a growth pace below 2% given that an inventory surge accounted for much of the increase in the July-September period.
Growth over the second half of the year come in at a 3.7% pace, up sharply from 1.8% in the first six months of the year.
It was the biggest half-year increase since the second half of 2003.
Consumer spending was the main driver of fourth-quarter growth, but there was also help from other segments of the economy such as trade and business investment.
The advance fourth-quarter GDP was released a day after the Federal Reserve said "growth in economic activity picked up in recent quarters."
The Fed yesterday announced another reduction to its monthly bond purchases and appeared to shrug off a surprise sharp slowdown in job growth in December.
Consumer spending rose at a 3.3% rate, the strongest since the fourth quarter of 2010.
Consumer spending, which accounts for more than two-thirds of US economic activity, advanced at a 2% pace in the third quarter.
Businesses accumulated $127.2 billion worth of inventories, the most since the first quarter of 1998, adding 0.42% to GDP growth.
Inventories had increased $115.7 billion in the third quarter, contributing 1.67% to output.
Excluding inventories, the economy grew at a 2.8% rate, up from the third-quarter's 2.5% rate.
The sturdy increase in final demand should put the economy on a stronger growth path this year.
However, a lack of wage growth could take some edge off consumer spending early in the year.
A feared inventory correction, which did not materialise in the fourth quarter, is now likely to show up in the first three months of the year and weigh on growth, economists say.
In addition, business investment is expected to moderate, given a surprise tumble in orders for capital goods excluding defense and aircraft in December.
Even so, a lessening of the fiscal austerity that gripped Washington last year should keep the economy on a firmer growth path.
Growth for the whole of this year is forecast at 2.9%, up from last year's 1.9%.
Wage growth has been stagnant as the economy deals with slack in the labour market.
Consumption in the fourth quarter came at the expense of saving.
The saving rate slowed to 4.3% in the fourth quarte rfrom 4.9% in the prior period. Real disposable personal income increased 0.8% in the fourth quarter, following an increase of 3% in the third quarter.
Sluggish wages kept inflation pressures benign in the fourth quarter. A price index in the GDP report rose at a 0.7% rate, decelerating from the third-quarter's 1.9% pace.
A core measure that strips out food and energy costs increased at a 1.1% rate after advancing at a 1.4% pace in the July-September period.
The economy in the last quarter also got a boost from exports, thanks to firmer global growth.
That, together with declining petroleum imports narrowed the trade deficit.
Business spending on equipment accelerated at a 6.9% rate in the fourth quarter after rising at only a 0.2% pace in the prior three months.
There was a decline in business spending on non-residential structures in the fourth quarter.
A run-up in mortgage rates, which held back home sales and renovations, saw residential investment falling for the first time since the third quarter of2010.
Government spending contracted at a 4.9% pace, reflecting a 16-day partial shutdown of the federal government in October.
The Commerce Department said the shutdown had reduced GDP growth by 0.3%, through a reduction in hours worked by federal employees.
US initial jobless claims jump
New claims for US unemployment insurance benefits jumped last week, breaking out of a five-week stretch of modestly low numbers, the US Labor Department said today.
But analysts downplayed any significance to the increase, with the weekly numbers often volatile.
New claims, which indicate the pace of layoffs, rose to 348,000 in the week to January 25, up 19,000 from the previous week's revised figure of 329,000. The four-week moving average rose slightly to 333,000.
In addition to some possible distortionary effect from Christmas during the period, the weekly data can be less reliable than usual at this time of year because of big swings before seasonal adjustment," analysts said.
They added that the recent claims data, running consistently below last year's weekly average of 343,000, has backed up a general picture of strengthening in tUS he job market.