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The US
economy grew stronger than expected in the fourth quarter of 2015, but the
revised data confirmed Friday a sluggish expansion heading into the new year. The
Commerce Department said that gross domestic product, the broad measure of
output, expanded at a 1.0% annual rate in the October-December quarter, faster
than its previous estimate of 0.7%.
The
upward revision surprised analysts, who had expected a cut to 0.4% amid
weakness in the world’s largest economy and a slowdown in the global economy. Even
with the upward revision, fourth-quarter growth marked a sharp deceleration
from the 2.0% expansion in the third quarter and the robust 3.9% pace in the
second quarter.
And
almost all of the reason for the increased GDP estimate came from an upward
revision to inventories, which signals weak demand and could weigh on growth in
the first quarter, and even into the second, analysts said. The department
highlighted stronger inventory investment in the retail trade industries and
mining, utilities and construction industries.
“Other
things equal, the upward revision to inventories implies weaker growth than
currently expected in Q1, because the difference between the level of inventory
and where it needs to be -- in order to restore prior norms, relative to sales
-- is bigger than previously believed,” said Ian Shepherdson of Pantheon
Macroeconomics.
Consumer
spending, which accounts for two thirds of GDP, rose at a 2.0% rate in the
year-end holiday quarter, not the 2.2% previously estimated, and below the robust
3.0% pace in the third quarter. eflecting the global weakness and the strong
dollar that makes US exports more expensive, exports fell 2.7%, more than seen
initially.
IHS
analysts said that the report cast a cloud on the outlook. “The correction to inventory
levels will take longer to normalize, moderately impacting the first half of
2016. Fortunately, the impact is small,” they said in a client note.
US pick-up seen
Jim
O’Sullivan, chief US economist at High Frequency Economics, said the GDP report
was unlikely to make a significant impact on first-quarter forecasts. “Data
available so far for Q1 suggest a pickup from the 1.0% overall pace, even if
inventories are still a bit of a drag,” O’Sullivan said. “Our Q1 forecast is
for a 2.3% pace.”
The US
growth data came after the Federal Reserve in December hiked its benchmark
interest rate pegged near zero for seven years. At the time, the Fed signaled
four rate hikes this year, saying the economy is growing modestly and the jobs
market has nearly recovered, while low inflation mainly due to weak oil prices
would eventually move back to its 2.0% annual rate target.
An
increase at the March 15-16 monetary policy meeting is unlikely, many analysts
say, given the financial market turmoil since the beginning of the year and the
weakening global outlook. A new piece of first-quarter data from the Commerce
Department on Friday, meanwhile, pointed to encouraging signs for the consumer,
with accelerating gains in January in income and spending.
Consumer
spending, personal income and disposable personal income all rose 0.5%. The
personal savings rate was unchanged at 5.2% from December. The Fed’s preferred
inflation measure moved higher from December. The personal consumption
expenditures price index rose to 1.3% year-over-year, while core PCE prices,
excluding energy and food, was up 1.7%.
Moody’s
Analytics analyst Bernard Yaros noted wage growth was expected to increase as
the job market tightens, providing a boost to the consumer who is already
benefiting from cheap energy prices. “Coming acceleration in income growth,
combined with saving not far below a four-year high, means that the consumer
will have the financial wherewithal to still guide the economy forward,” he
said.
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