The U.S. economy increased at an annual rate of 1.1 percent in the last quarter of 2005, the slowest pace in three years, the Commerce Department reported on Friday.

The report also showed that U.S. economy registered respectable overall growth of 3.5 percent for all of 2005, compared with an increase of 4.2 percent in the previous year.

The sharp slowdown of the U.S. economy in the fourth quarter resulted mainly from the fact that consumers turned cautious as high energy prices and rising borrowing costs took their toll budgets. U.S. consumer spending increased by just 1.1 percent pace in the fourth quarter, the slowest since the second quarter of 2001 when the U.S.economy was suffering through a recession.

Most of the weakness came as consumers sharply cut back on purchases of durable goods including cars and appliances. Spending on durable goods dropped by a hefty 17.5 percent rate in the final quarter, the sharpest decline since the first quarter of 1987.

The slowdown of U.S. economy also resulted partly from the decline of government spending which had contributed to overall economic growth in prior quarters. In the fourth quarter, U.S. government spending declined at a 2.4 percent pace, the largest drop since the first quarter of 2000.

Businesses, meanwhile, increased their spending on equipment and software in the final quarter of last year at a 3.5 percent rate, the smallest gain since the first quarter of 2003. Spending on residential projects also rose at a 3.5 percent pace in the fourth quarter. That was down from a 7.3 percent pace in the prior quarter and an additional sign that the housing boom is losing some of its steam.

The report also said that an inflation gauge tied to the U.S. gross domestic product (GDP) showed prices rose at 2.6 rate in the fourth quarter, down from a 3.7 percent pace in the third quarter.

Source: Xinhua