Economic growth picked up speed at the end of last year

The U.S. economy grew a little faster at the end of 2010 than the government had previously estimated, boosted by more inventory building and business investment in plants and equipment.

But rising oil prices will likely limit growth this year.

The economy, as measured by the gross domestic product, grew at an annual rate of 3.1 percent in the October-December quarter, the Commerce Department reported Friday. That represents an upward revision from last month's 2.8 percent estimate for the same period.

The gains offset a slightly larger trade deficit. And many economists believe the economy has slowed in the current January-March quarter.

A jump in oil prices fueled by political unrest in the Middle East and North Africa threatens to cut into consumer spending. There is also a concern that the Japanese crisis will disrupt factory production there. That could slow activity at some U.S. companies that rely on Japanese manufacturers for parts, especially in the U.S. auto and electronics industries.

The new uncertainty has led many economists to trim their growth estimates for the current quarter. There is a wide range of estimates, from 2.3 percent to 3.8 percent.

Economists say growth needs to average around 5 percent for a year just to lower the current 8.9 percent unemployment rate by 1 percentage point.

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The government's estimate of 3.1 percent growth in the October-to-December quarter would represent the strongest performance since the start of last year, when the economy was growing at a 3.7 percent rate.

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For the final three months of the year, consumer spending grew at an annual rate of 4 percent, the strongest showing in four years. Consumer spending is closely watched because it accounts for 70 percent of economic activity.

Residential construction was growing at an annual rate of 3.3 percent in the final three months of the year after plunging at a 27.3 percent rate in the July-September quarter. However, there is concern about the prospects for housing given recent weakness in home sales and construction.

Government spending was shrinking at a rate of 1.7 percent in the final three months of last year. State and local governments are struggling to get budget deficits under control.

Economic growth of 3.5 percent this year would still be the best performance since 2004. Last year, the economy grew 2.9 percent following a 2.6 percent drop in 2006. That had been the biggest decline in more than six decades.