Housing, however, will probably take a while to escape from its
recent slump as contracts to buy previously owned homes fell to
their lowest level in almost 2-1/2 years in February.
Still, economists said on balance the data on Thursday presented a
better growth picture. "The economy looks in a better place than it
did just 24 hours ago," said Chris Rupkey, an economist at Bank of
Tokyo-Mitsubishi UFJ in New York.
Gross domestic product expanded at a 2.6 percent annual rate in the
final three months of last year, the Commerce Department said, up
from the 2.4 percent pace it reported last month.
Although the revised pace was still significantly slower than the
4.1 percent rate logged in the third quarter, the composition of
growth suggested underlying strength.
Consumer spending, which accounts for more than two thirds of U.S.
economic activity, was raised sharply higher and the pace of
restocking by businesses was not as robust as previously estimated.
Business investment in equipment was a bit stronger and the drop in
government outlays was a little less pronounced.
A separate report from the Labor Department showed initial claims
for state unemployment benefits dropped 10,000 to a seasonally
adjusted 311,000 last week, the lowest level since November.
Economists had expected claims to rise to 325,000.
The four-week average, which gives a better picture of underlying
labor market conditions as it irons out week-to-week volatility, hit
its lowest level in six months.
U.S. financial markets were little moved by the data as investors
kept a wary eye on the situation in Ukraine.
In another report, the National Association of Realtors said its
pending home sales index, based on contracts signed last month, fell
0.8 percent to its lowest level since October 2011.
Housing has been hit by cold weather, a tight supply of properties
for sale and higher mortgage rates. High house prices are also
sidelining potential buyers, especially those venturing into the
market for the first time.
GROWTH REVISION SHOWS UNDERLYING STRENGTH
It was the eighth consecutive decline in newly signed contracts, and
it suggested home resales would likely fall again in March.
"The tightening of financial conditions last summer did have a
negative impact and it is broader than just the weather-related
weakness," said Yelena Shulyatyeva, an economist at BNP Paribas in
New York. "The contract signings data imply continued weakness in
existing home sales this spring."
[to top of second column]
The 30-year fixed mortgage rate peaked at 4.49 percent in September.
While it dropped to about 4.30 percent in February, it is still a
full percentage point higher than it was in 2013.
Despite the housing market's struggles, the Fed is expected to wind
down its monthly bond-buying program by year-end, and begin to push
interest rates higher sometime next year.
Growth in the first quarter is expected to have slowed to a pace of
around 2 percent, held back by cold weather, the expiration of
long-term unemployment benefits, cuts to food stamps and businesses
placing fewer orders with manufacturers as they work through a pile
of unsold goods.
The revision to fourth-quarter growth, however, offered hope for an
acceleration as these temporary factors fade.
"The recovery is finally self-sustaining," said Gus Faucher, senior
economist at PNC Financial Services in Pittsburgh. "The economy
should quickly pick back up again in the second quarter."
Growth in consumer spending was revised up to a 3.3 percent rate
from 2.6 percent. It was the strongest gain in consumer spending in
three years and it added more than two percentage points to GDP
An upward revision to spending on health care was the main driver
behind the new estimate, although spending on utilities and
long-lasting manufactured goods was also bumped higher.
The increase in inventories, previously reported as $117.4 billion,
was revised down to $111.7 billion. The downward revision is
positive for near-term economic growth because with fewer stocks on
hand, businesses now are more likely to place new orders or
otherwise ramp up production to meet demand.
(Reporting by Lucia Mutikani; additional reporting by Jason Lange;
editing by Andrea Ricci)
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