US economy grew surprise 1% in 4th quarter


A shopper has receipt checked for a Samsung television before leaving a Best Buy store in Westbury, New York November 27, 2015. Crowds were thin at U.S. stores and shopping malls in the early hours of Friday, initial spot checks showed, as shoppers responded to early Black Friday discounts with a mix of enthusiasm and caution. REUTERS/Shannon Stapleton

WASHINGTON: 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.

Reflecting 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. - AFP


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