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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 reduce unwanted inventory, which could hurt output within the first 3 months of 2016.
Gross domestic product increased at a 1.0 percent annual rate rather than 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 could be revised down to a 0.4 per cent pace. The economy grew at a rate of 2.0 percent in the third quarter and expanded 2.4 percent in 2015.
U.S. stock index futures extended gains after the data, while prices of Treasuries fell. The dollar added to gains against a basket of currencies.
Businesses accumulated US$81.7 billion worth of inventory within the fourth quarter as opposed to the US$68.6 billion reported last month. The largest contributors towards the upward revision to inventory investment were retail trade and mining, utilities and construction.
As an effect, inventories subtracted only 0.14 percentage point from GDP growth rather than the previously reported 0.45 percentage point.
The bigger inventory build is bad news for first-quarter GDP growth because it means businesses will have little incentive to place new orders, which will continue to hold down production.
“The weaker drag from inventories within the fourth quarter means that any rebound within the first quarter could be a little more modest than we previously expected,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.
“Nevertheless, it still appears that first-quarter GDP growth is on track to rebound to some very healthy 2.5 per cent annualized or more, that ought to dampen any concerns a good imminent recession.”
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DOWNSIDE RISKS
First-quarter GDP growth estimates are as high as a couple.5 percent rate, however the risks are tilted towards the downside amid slowing world economies, a powerful dollar and a recent global stock market sell-off that has tightened financial market conditions.
Cheap oil has also been a continue the profits of oil field companies for example Schlumberger and Halliburton, prompting them to slash capital expenditure budgets.
The upward revision to fourth-quarter GDP growth also reflected a smaller trade deficit than initially thought 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 percent rate last quarter, when compared to previously reported 2.5 percent rate.
There was a small downward revision to consumer spending, which accounts for a lot more than two thirds of U.S. business activities. Consumer spending rose in a 2.0 percent pace as opposed to the 2.2 per cent rate reported recently.
Unusually mild weather hurt sales of winter apparel in December and undermined demand for 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 paying for nonresidential structures contracted in a 6.6 percent rate as opposed to the 5.3 percent pace reported recently. Government spending contracted at a 0.1 per cent rate rather than rising in a 0.7 per cent rate.
? Thomson Reuters 2016
