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WASHINGTON – U.S. economic growth slowed within the fourth quarter, although not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from efforts by businesses to reduce 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 have risen at only a 0.7 per cent rate. The economy grew at a rate of 2.0 per cent in the third quarter and expanded 2.4 percent its 2015.
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Economists polled by Reuters had expected that fourth-quarter GDP growth could be unrevised at a 1.0 per cent rate.
The upward revisions reflected a stronger pace of consumer spending than previously estimated.
Consumer spending, which makes up about a lot more than two thirds of U.S. economic activity, rose at a 2.4 per cent pace rather than the 2.0 percent rate reported recently. That reflected more use of services than ever before estimated.
The fairly solid pace of consumer spending underscores the economy’s underlying strength and really should further allay fears of the recession, which triggered a massive stock exchange sell-off early this year.
Spending has been based on a tightening labor market, which is steadily lifting wages, and rising house prices.
Gasoline prices around $2 per gallon will also be helping 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 as opposed to the $81.7 billion reported recently. As a result, inventories subtracted 0.22 percentage point from GDP growth instead of the previously reported 0.14 percentage point.
First-quarter GDP growth estimates remain a 1.5 per cent 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 to the downside.
There was some bad news within the GDP report, with corporate profits falling for a second straight quarter as a strong dollar and cheap oil undercut the earnings of multi-national companies.
Profits after tax with inventory valuation and capital consumption adjustments declined at an annual rate of 8.4 percent, the biggest drop since 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 within the third quarter.
For all 2015 profits dropped 5.1 per cent, the biggest drop since 2008, after slipping 0.6 percent in 2014.
Part from the stop by profits within the fourth quarter was as a result of $20.8 billion transfer payment associated with the BP oil spill in the Gulf in 2010, that was the biggest U.S. offshore oil spill.
Profits from the world decreased $6.5 billion within the final 3 months of 2015 after sliding $23.1 billion in the third quarter.
Manufacturing profits declined $139.2 billion during the last quarter after decreasing by $4.1 billion in the July-September period. Profits within the petroleum and coal products sector tumbled $124.3 billion after rising $7.0 billion in the third quarter.
The dollar gained 10.5 percent last year in comparison to the currencies from the United States’ main trading partners, placing a squeeze on the profits of multinationals for example Procter & Gamble and Colgate-Palmolive.
A a lot more than 60 per cent plunge in 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 since the start of year and also the oil price slide ebbing, corporate earnings are poised to increase, helping to underpin job growth.
@ Thomson Reuters 2016
