Fourth-quarter GDP, corporate earnings soar

The fastest pace of economic growth in six years during the final three months of 2009 fueled a surge in corporate profits that may set the stage for job gains and a broadening of the U.S. recovery.

Company earnings increased 8% in the fourth quarter, capping the biggest year-over-year gain in 25 years, figures from the Commerce Department showed Friday. The economy expanded at a 5.6% annual rate.

“The fact that you see a sustained recovery in profits over the last four quarters, that’s a vote of confidence that the next phase of the recovery could be upon us,� said Jonathan Basile, an economist at Credit Suisse in New York. “And that phase is when companies begin to spend those profits, with more investment and more hiring.�

Caterpillar Inc. and Boeing Co. are among manufacturers seeing stronger demand as business investment, consumer purchases and exports keep climbing, indicating the recovery is continuing this year. Americans’ optimism was higher than anticipated in March as companies slowed the pace of job cuts, a separate report showed.

The Reuters/University of Michigan final consumer sentiment index for this month held at 73.6. The preliminary reading of the measure, released two weeks ago, was 72.5. Economists had forecast that the final gauge would be 73, according to the median estimate in a Bloomberg News survey.

Gains in sentiment that may lead to a pickup in consumer spending, which accounts for about 70% of the economy, hinge on employment growth that has yet to materialize.

Fourth-quarter corporate profits, reported by the Commerce Department on Friday for the first time, increased by $108.7 billion to $1.47 trillion.

The economy was forecast to grow at a 5.9% annual pace, the same as the government estimate in February, according to the median estimate of economists in a Bloomberg survey.

The downward revision reflected larger decreases in commercial construction and stockpiles, and a smaller gain in consumer spending than estimated last month.

Efforts to stabilize inventories provided the biggest boost to growth last quarter, contributing 3.8 percentage points to GDP.

Business investment in new equipment advanced at a 19% pace last quarter, the biggest gain since 1998.

A Commerce Department report this week showed that companies ordered more long-lasting goods from factories in February, driven primarily by bookings for commercial aircraft, machinery and metals.

The gains suggest the manufacturing rebound will keep propelling the recovery even as commercial construction continues to slump.

Boeing, seeking to reclaim its title as the world’s biggest commercial-plane maker, said this month that it would boost production of its largest jets to meet increasing demand.

There has been a “dramatic pickup� in air-freight shipments and passenger travel in the last four to five months, marketing chief Randy Tinseth said in a March 19 interview.

Caterpillar also said this month that it planned to hire 500 workers starting this year to expand a generator plant in Newberry, S.C.