Tags: gdp | economy | growth | trade

Fourth-Quarter GDP Rose Less Than Prior Estimate

Friday, 27 February 2015 09:09 AM

The economy in the U.S. expanded at a slower pace in the fourth quarter than previously reported, restrained by a smaller gain in stockpiles and widening trade gap.

Gross domestic product, the value of all goods and services produced, rose at a 2.2 percent annualized rate, down from an initial estimate of 2.6 percent, Commerce Department figures showed Friday in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 2 percent pace.

Consumer spending last quarter climbed by the most in four years, underscoring the underlying strength of the expansion. An improving job market and cheaper fuel costs will probably keep underpinning households this year, which will help the U.S. overcome a slowdown in exports as the dollar climbs and foreign economies struggle.

“The economy is still chugging along pretty nicely,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florid, who correctly projected the rate of growth. “We’re seeing better job growth, the drop in gas prices is really going to be beneficial for consumers and small businesses, and that should help the pace of growth to pick up.”

Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing in March fell 0.1 percent to 2,107.9 at 8:46 a.m. in New York.

Survey Results

Economists’ GDP projections in the Bloomberg survey ranged from 1.5 percent to 2.5 percent. This is the second of three estimates for the quarter, with the other release scheduled for March when more information can be incorporated.

For all of 2014, the U.S. economy grew 2.4 percent from the year before, following a 2.2 percent advance in 2013. Consumer spending rose 2.5 percent, the most since 2006.

Household consumption, which accounts for about 70 percent of the economy, grew at a 4.2 percent annualized rate in the fourth quarter, the most since the last three months of 2010. It was previously estimated at 4.3 percent. Purchases added 2.8 percentage points to growth.

A smaller gain in spending on goods than previously calculated was almost fully offset by a bigger advance in purchases of services, which grew at a 4.1 percent pace, the most since 2000.

Inventory Swing

Inventories contributed less to growth than earlier reported. Stockpiles grew at a $88.4 billion annualized rate from October through December, down from a prior estimate of $113.1 billion. Following the $82.2 billion increase in the third quarter, the smaller gain added 0.1 percentage point to growth, compared with a previously reported 0.8 point.

The trade gap weighed on growth more than previously estimated, Friday’s report showed. The difference between exports and imports shaved 1.15 percentage point from growth, compared with a 1.02 percentage point reduction previously estimated.

The U.S. dollar index, a gauge of its value against major world currencies, climbed Thursday to the highest level in more than a decade. An appreciating currency could pressure exports by making American goods more expensive to foreign customers.

Stripping out inventories and trade, the two components of GDP that are most vulnerable to swings, so-called final sales to domestic purchasers increased 3.2 percent, exceeding the previously reported 2.8 percent advance.

Business Investment

Business fixed investment increased at a 4.5 percent annualized rate, revised up from a previously estimated 2.3 percent gain. The improvement reflected more spending on equipment and on research and development.

Government spending declined at a 1.8 percent pace, compared with the previously reported 2.2 percent decrease, Friday’s report showed. More outlays by state and local agencies account for the upward revision.

Friday’s report also included revisions to third-quarter personal income. Wages and salaries rose by $87.2 billion, a $20.5 billion improvement from the prior estimate. Preliminary data showed they climbed by $94.4 billion in the fourth quarter.

Federal Reserve policy makers are expecting growth to pick up this year, as they weigh the timing of their first interest rate increase since 2006. The central tendency of Fed-official estimates projects GDP will climb between 2.6 percent and 3 percent.

Yellen’s View

“If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis,” Yellen said in congressional testimony on Feb. 24-25. GDP “is expected to be strong enough to result in a further gradual decline in the unemployment rate.”

Job growth has strengthened over the past year, with payrolls rising 257,0000 in January to cap their strongest three-month run in 17 years. Unemployment rose to 5.7 percent from 5.6 percent in December as Americans streamed into the labor force in search of work.

While the jobs have yet to translate into bigger gains in wages, there are “perhaps hints” that bigger increases may be on the horizon, Yellen said in the testimony. Average hourly earnings climbed 0.5 percent from the month before in January, the most since November 2008.

Companies such as Target Inc. are benefiting from the improvement in consumers’ balance sheets. The Minneapolis-based company posted earnings for its fiscal fourth quarter that topped analysts’ estimates, lifted by a holiday sales gain.

“We recognize that the consumer confidence has certainly improved,” Chief Executive Officer Brian Cornell said in a Feb. 25 conference call, adding that lower gasoline prices have been helping the retail industry. “The consumer, we do believe, is healthier, and we’re pleased that they are spending in our stores, both in our stores and online.”

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The economy in the U.S. expanded at a slower pace in the fourth quarter than previously reported, restrained by a smaller gain in stockpiles and widening trade gap.
gdp, economy, growth, trade
Friday, 27 February 2015 09:09 AM
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