WASHINGTON – U.S. economic growth slowed in the fourth quarter, but not as sharply as initially thought, with businesses less aggressive in their efforts to lessen unwanted inventory, that could hurt output in the first three months of 2016.
Gross domestic product increased at a 1.0 percent annual rate instead of the previously reported 0.7 per cent pace, the Commerce Department said on Friday in its second GDP estimate.
Economists polled by Reuters had expected that fourth-quarter GDP growth would be revised right down to a 0.4 per cent pace. The economy grew at a rate of two.0 percent within the third quarter and expanded 2.4 per cent in 2015.
U.S. stock index futures extended gains following the data, while prices of Treasuries fell. The dollar added to gains against a gift basket of currencies.
Businesses accumulated US$81.7 billion worth of inventory in the fourth quarter as opposed to the US$68.6 billion reported last month. The biggest contributors to the upward revision to inventory investment were retail trade and mining, utilities and construction.
As a result, inventories subtracted only 0.14 percentage point from GDP growth rather than the previously reported 0.45 percentage point.
The bigger inventory build isn’t good news for first-quarter GDP growth because it means businesses may have little incentive to place new orders, that will still hold down production.
“The weaker drag from inventories within the fourth quarter means that any rebound within the first quarter might be slightly more modest than we previously expected,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
“Nevertheless, still it appears that first-quarter GDP growth is on the right track to rebound to some very healthy 2.5 percent annualized or higher, that ought to dampen any concerns a good imminent recession.”
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DOWNSIDE RISKS
First-quarter GDP growth estimates are up to a couple.5 percent rate, but the risks are tilted to the downside amid slowing world economies, a strong dollar along with a recent global stock market sell-off that has tightened financial market conditions.
Cheap oil has additionally been a drag on the profits of oil field companies such as Schlumberger and Halliburton, prompting them to slash capital expenditure budgets.
The upward revision to fourth-quarter GDP growth also reflected an inferior trade deficit than initially looked as imports contracted. The trade deficit subtracted 0.25 percentage point from GDP growth instead of the 0.47 percentage point reported recently.
Business paying for equipment contracted in a less steep 1.8 per cent rate last quarter, when compared to previously reported 2.5 percent rate.
There was a small downward revision to consumer spending, which accounts for more than two thirds of U.S. business activities. Consumer spending rose in a 2.0 percent pace rather than the 2.2 per cent rate reported last month.
Unusually mild weather hurt sales of winter apparel in December and undermined interest in heating. But you will find signs consumption acquired in January with the return to more normal winter temperatures.
With gasoline prices around US$2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, the basic principles for consumer spending remain quite strong.
Business spending on nonresidential structures contracted at a 6.6 per cent rate rather than the 5.3 percent pace reported last month. Government spending contracted at a 0.1 percent rate rather than rising at a 0.7 per cent rate.
? Thomson Reuters 2016
