The figure is the first of three estimates. It fell short of the 3 percent growth economists expected but comes off as respectable following GDP declines in Germany and Britain of 0.25 percent and 0.2 percent, respectively.
The department said consumer spending, which accounts for more than 70 percent of the total GDP, rose by 2 percent in the fourth quarter after rising 1.7 percent in the third quarter and 0.7 percent in the second quarter.
The estimate may shift when more data is made available, so the year's performance is not final.
As things stand, it plays out in this fashion: Fourth-quarter growth was the strongest since the second quarter of 2010, but the year's growth of 1.7 percent was a considerable drop from 2010, when the economy grew 3 percent.
The department's report shows the U.S. trade deficit growing toward the end of the year.
Business investment rose 1.7 percent, a sharp drop from the previous quarter in which non-residential investment rose 15.7 percent and in the second quarter when it was up 10.3 percent.
Pointing to slower business investment and a reliance on inventory buildup, the chief economist at Markit, Chris Williamson, said, it is "likely that the fourth quarter may represent the peak in the rate or expansion."
"In particular, U.S. consumers remain concerned about debt, job security and the housing market, which will stifle domestic demand," he said.
Predicting growth of 1.8 percent January through March, Morici said, "Jobs growth lags GDP."
"Look for jobs growth to slow and drag on Mr. Obama's popularity during the critical spring and summer campaigning season," he said.
The report says inflation remained muted in the fourth quarter, as it has since the December 2007 through June 2009 recession. The consumer price index in the fourth quarter rose 0.7 percent after rising 2.3 percent in the third quarter.
Core inflation, which excludes the volatile categories of food and energy items, rose 1.1 percent in the fourth quarter after climbing 2.1 percent in the third.
Consumer spending rose 1.7 percent in the July through September quarter, lower than the earlier estimate of 2.3 percent.
The Commerce Department said adjusted corporate profits after taxes rose 2.1 percent on a 12-month basis in the third quarter, a downward revision. Profits, however, still showed improvement over the 1.1 percent rise in the second quarter.