RECOVERY has long seemed a transient guest in America. As recently as last summer, a return to falling output seemed a real possibility. On the surface, the latest GDP figures hardly suggest a decisive turn for the better. According to preliminary estimates of fourth-quarter output, the economy expanded at a 3.2% annualised pace, up a bit from a 2.6% rise in the third quarter, though below economists' forecasts. But a closer look suggests that America's economy may at last be approaching something like strong growth.

At 3.2%, the rise in GDP is disappointing for this stage in a recovery. At a similar point in the early 1980s business cycle, annual growth was roaring ahead at 7.1%, and employment was growing rapidly. Now the American economy is running a full $800 billion (5.7%) short of its potential output, and only in the fourth quarter did GDP finally pass its pre-recession peak. But the headline figures are misleading.

As demand grew late in 2010, consumers purchased more than the economy produced. This meant that inventories shrank. On the national accounts this inventory decline shows up as a 3.7 percentage-point drag on total growth, but is also evidence of strong demand. Real final sales—GDP minus inventory changes—surged ahead at a 7.1% annual rate in the last three months of the year. That was the best quarterly performance since 1984, and up substantially from the meagre 0.9% annualised growth in the third quarter.

Economists are cautious. Inventory declines often go with a drop in imports, and the fourth quarter was no exception. The drop in inventory may presage surging imports as firms restock, meaning that growing demand will simply flow abroad, as has often happened. But there are signs that America's persistent trade imbalances are eroding. America's trade deficit shrank for a third consecutive month in November, as exports grew faster than imports.

In late December, the dollar resumed a decline that has been interrupted only by periodic European crises. A weakening dollar reduces the cost of American goods abroad, supporting export growth. A yawning trade deficit with China persists, and the dollar's fall against China's currency, the yuan, proceeds at a glacial pace. But China's soaring wages and prices are undermining its international cost advantage.

Early signs indicate even better conditions in 2011. America's first manufacturing report of the year showed activity accelerating to the fastest level since 2004. Markets have shrugged off international crises to attain highs last seen in June 2008, before the Lehman crisis. For the first time in this recovery, the underlying economy looks independently strong, unaided by government stimulus or cyclical factors.

It is too soon to declare victory, though. After two years of stimulus, federal government spending has now joined state and local budgets as a drag on growth. This trend will continue; future growth will come despite government cuts rather than because of government support. Financial shocks may yet rattle the world in 2011. And rising commodity prices could pose the biggest threat of all. Costly commodities will deter the resurgent American consumer, and may also spook the Federal Reserve into withdrawing monetary support at a faster pace.

Meanwhile, the weakness in labour markets continues. Private-sector firms added 187,000 workers in January, according to a private employment report, following a gain of 247,000 in December. These figures, up from an average increase of only 52,000 over the previous six months, may signal a thaw in hiring conditions. But employment is still scarcely 1% above its post-recession lows. Until Americans can count on a reviving economy to produce new jobs they will be sceptical about recovery, and growth will remain vulnerable.