Is an economic upturn on the way?

WASHINGTON — The economy lagged during its last lap of 2005 but still managed to finish the race — for the whole year — with a respectable showing.

Gross domestic product clocked in at an annual rate of just 1.1 percent from October through December, the Commerce Department said in its official scorecard on the economy released Friday.

That was the slowest pace in three years and seemed like a crawl next to the third quarter's brisk 4.1 percent growth rate. Belt-tightening by consumers, businesses and the government figured into the fourth quarter's slowdown.

GDP, which measures the value of all goods and services produced in the United States, is the best barometer of the economy's fitness.

Even with the feeble finish, the economy logged growth of 3.5 percent for all of 2005, a year when the country coped with fallout from soaring energy prices and the devastating Gulf Coast hurricanes. Analysts called the GDP figure for all of 2005 solid, although it was down from 2004's 4.2 percent gain.

"Considering the impact of the hurricanes and record heating bills last year, the economy continues to show remarkable resilience," said Bill Cheney, chief economist at John Hancock Financial Services.

Looking at the fourth quarter, economists felt the slowdown was more of a temporary setback than a harbinger of a sustained period of economic troubles ahead.

"The economy hit a pothole in the fourth quarter. I'm not at all worried about the health of the economy," said Mark Zandi, chief economist at Moody's Economy.com.

Zandi believes the economy in the current January-to-March quarter is already doing better and predicts growth will come in at around a 4 percent pace. For all of 2006, analysts project economic growth to top 3 percent.

Consumers turned cautious in the final quarter as high energy prices and rising borrowing costs took a toll on their budgets. Their spending grew at a 1.1 percent pace, the slowest since the second quarter of 2001 when the economy was suffering through a recession.

Most of the weakness came as people sharply curbed purchases of big-ticket "durable" goods, such as cars. This spending dropped by a hefty 17.5 percent rate, the sharpest decline since the first quarter of 1987.

Businesses also were more restrained, boosting spending on equipment and software at a 3.5 percent rate in the fourth quarter, the smallest since the first quarter of 2003.

Another factor restraining overall GDP in the fourth quarter was federal government spending, which fell at a 7 percent rate, the biggest drop since the third quarter of 2000. Analysts, skeptical about this decline, believed it would be reversed.

In a second report, the Commerce Department said new home sales in 2005 climbed to an all-time high, marking the fifth year in a row of record sales. Sales of new single-family homes totaled 1.28 million units last year, a 6.6 percent increase over 2004's sales.

The roaring housing market has helped to bolster the economy, but analysts expect it to lose steam this year.