WASHINGTON: United States economic growth slowed in the fourth quarter, but not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from efforts by businesses to reduce an inventory overhang.
Gross domestic product rose at a 1.4 percent annual rate instead of the previously reported 1 percent pace, the Commerce Department said yesterday in its third GDP estimate.
GDP growth was initially estimated to have risen at only a 0.7 percent rate. The economy grew at a rate of 2 percent in the third quarter and expanded 2.4 percent for all of 2015.
Economists polled by Reuters had expected that fourth-quarter GDP growth would be unrevised at a 1 percent rate.
The upward revision reflected a stronger pace of consumer spending than previously estimated.
Consumer spending, which accounts for more than two thirds of US economic activity, rose at a 2.4 percent pace and not the 2 percent rate reported last month. More consumption of services than previously estimated accounted for the revision.
The fairly solid pace of consumer spending underscores the economy’s underlying strength and should further allay fears of a recession, which triggered a massive stock market sell-off early this year.
Spending is being backed by a tightening labor market, which is steadily lifting wages, and rising house prices. Gasoline prices around US$2 per gallon are also helping to underpin household discretionary spending.
A moderately growing economy, combined with a strong jobs market and firming inflation, likely keeps the Federal Reserve on a path to gradually raise interest rates this year.
Inventory investment was revised lower in the fourth quarter. Still, inventories remain high relative to domestic demand.
Businesses accumulated US$78.3 billion worth of inventory rather than the US$81.7 billion reported last month. As a result, inventories subtracted 0.22 percentage points from GDP growth instead of the previously reported 0.14 percentage points.
First-quarter GDP growth estimates are around a 1.5 percent rate. But with the inventory pile still large and shipments of capital goods ordered by businesses weak in January and February, the risks to growth are tilted to the downside.
There was some bad news in the GDP report, with corporate profits falling for a second straight quarter as a strong dollar and cheap oil undercut the earnings of multinational companies.
Profits after tax with inventory valuation and capital consumption adjustments fell at an annual rate of 8.4 percent, the biggest drop since the first quarter of 2014, after shedding at a 1.7 percent pace in the third quarter.
Profits from current production fell US$159.6 billion after shedding US$33 billion in the third quarter.
