US economic growth slowed dramatically in the last three months of 2005 to 1.1%, from 4.1% in the previous quarter, the latest government figures show.
The Commerce Department said that over all of 2005, the gross domestic product (GDP) of the world's biggest economy grew by 3.5%, down from 4.2% in 2004.
Giving its first estimate of GDP growth for the fourth quarter, the department said the slowdown was due largely to weak car sales, slower business investment, a rise in imports and a large drop in federal spending.
It was the weakest US growth figure in three years and will intensify debate over whether the Federal Reserve should call a halt to its campaign of interest rate hikes when it meets next Tuesday. But the GDP report also showed inflationary pressure building.
The core personal consumption expenditure price index - a key measure of inflation watched closely by the Fed - rose at a 2.2% annual rate in the quarter. That was above the Fed's informal target range of 1-2%.
The report also showed that over 2005, the personal savings rate of Americans was negative for the first year since 1933. A spending binge by US consumers on the back of a red-hot property market has done much to elevate GDP growth in recent years. But the housing sector is now slowing, creating the fear that consumer spending could be hurt.
In the fourth quarter, consumer spending increased at an annual rate of 1.1%, down heavily from 4.1% in the third quarter. It was the slowest spending pace since the last recession in mid-2001. The fall was largely due to a collapse in car sales, which alone subtracted 2.1 percentage points from growth.
Spending on durable goods such as washing machines and refrigerators fell 17.5%, the biggest drop in 18 years.
The Commerce Department report is only a first estimate, and so is subject to revisions, with another estimate based on more comprehensive data due out on February 28. Federal government consumption and gross investment also slumped 7% in the fourth quarter. National defence spending fell 13.1%.
