WASHINGTON – U.S. economic growth slowed in the fourth quarter, although not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from efforts by businesses to lessen a listing overhang.
Gross domestic product increased in a 1.4 per cent annual rate instead of the previously reported 1.0 per cent pace, the Commerce Department said on Friday in the third GDP estimate.
GDP growth was initially estimated to possess risen at just a 0.7 percent rate. The economy grew at a rate of 2.0 percent in the third quarter and expanded 2.4 percent for all of 2015.
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Economists polled by Reuters had expected that fourth-quarter GDP growth would be unrevised in a 1.0 per cent rate.
The upward revisions reflected a stronger pace of consumer spending than ever before estimated.
Consumer spending, which accounts for a lot more than two thirds of U.S. business activities, rose at a 2.4 per cent pace rather than the 2.0 percent rate reported recently. That reflected more consumption of services than previously estimated.
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 exchange sell-off early this season.
Spending is being supported by a tightening labor market, that is steadily lifting wages, and rising house prices.
Gasoline prices around $2 per gallon will also be assisting to underpin household discretionary spending.
Inventory investment was revised lower. Still, inventories remain high in accordance with domestic demand.
Businesses accumulated $78.3 billion price of inventory rather than the $81.7 billion reported recently. As a result, inventories subtracted 0.22 percentage point from GDP growth rather than the previously reported 0.14 percentage point.
First-quarter GDP growth estimates are around single.5 percent rate. But with the inventory pile still large and shipments of capital goods ordered by businesses weak in January and February, the potential risks to growth are tilted towards the downside.
There was some bad news in the GDP report, with corporate profits falling for any second straight quarter as a strong dollar and cheap oil undercut the income of multi-national companies.
Profits after tax with inventory valuation and capital consumption adjustments declined in an annual rate of 8.4 %, the largest drop because the first quarter of 2014, after dropping in a 1.7 percent pace in the third quarter.
Profits from current production fell $159.6 billion after decreasing $33.0 billion in the third quarter.
For all 2015 profits dropped 5.1 percent, the biggest drop since 2008, after slipping 0.6 percent in 2014.
Part of the drop in profits within the fourth quarter was due to a $20.8 billion transfer payment related to the BP oil spill within the Gulf this year, which was the largest U.S. offshore oil spill.
Profits in the world decreased $6.5 billion in the final three months of 2015 after sliding $23.1 billion in the third quarter.
Manufacturing profits declined $139.2 billion over the past quarter after decreasing by $4.1 billion within the July-September period. Profits in the petroleum and coal products sector tumbled $124.3 billion after rising $7.0 billion within the third quarter.
The dollar gained 10.5 percent last year in comparison to the currencies from the United States’ main trading partners, putting a squeeze around the profits of multinationals for example Procter & Gamble and Colgate-Palmolive.
A a lot more than 60 per cent plunge in crude oil prices from highs above US$100 a barrel in June 2014 has also hurt the earnings of oilfield service firms like Schlumberger and Halliburton.
But using the dollar’s appreciation slowing because the start of year and the oil price slide ebbing, corporate profits are poised to increase, helping to underpin job growth.
@ Thomson Reuters 2016
