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 Gross domestic product expanded at a 2.4 percent annual rate, the
Commerce Department said, down sharply from the 3.2 percent pace it
reported last month and the 4.1 percent logged in the third quarter.
The economy has faced a number of headwinds, including a 16-day
shutdown of the government in October and an unusually cold winter
that has weighed on activity since late December.
Growth has also been dampened by 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 in their warehouses.
"I don't think the fundamentals have changed appreciably," said Ryan
Sweet, a senior economist at Moody's Analytics in West Chester,
Pennsylvania. "Heading into this year we knew it wasn't going to be
smooth sailing."
First-quarter growth is forecast at below a 2 percent pace. But
other data on Friday on consumer sentiment, regional factory
activity and housing suggested some economic thawing, which should
put growth on a stronger path later in the year.
Consumer sentiment rose modestly in February, while factory activity
in the Midwest edged up after three months of slower growth. In
addition, contracts to buy previously owned homes nudged up in
January after being on a downward trend since July.
"That suggests some stabilization in economic activity," said Millan
Mulraine, deputy chief economist at TD Securities in New York. "It
bolsters the current narrative that the slowing in activity has been
the result of the unseasonably cold winter conditions, which we
expect to reverse in coming weeks."
The mixed data buoyed U.S. stocks, but they gave up some gains late
in the session on rising tensions in Ukraine. The Standard & Poor's
500 index closed at a record high for a second straight day.
U.S. government debt prices fell, although they pushed off the day's
lows in late trade. The dollar weakened against a basket of
currencies.
STRONGER 2014 GROWTH EYED
Frigid temperatures have slammed retail sales, industrial
production, residential construction and home sales, while also
putting a brake on hiring early this year.
The Federal Reserve, which has been cutting back on the amount of
money it is pumping into the economy through monthly bond purchases,
views the recent soft patch as temporary.
Fed Chair Janet Yellen told lawmakers on Thursday the cold weather
had played a role in the weakening data, and that it would take a
"significant change" to the economy's prospects for the central bank
to suspend plans to wind down its stimulus.
Indeed, a number of Fed officials on Friday made clear they still
believed the economy was on an improving path.
"I'd still project that 2014 would have stronger GDP growth than
2013 did," even if recent signs of weakness turned out not to be
weather-related, St. Louis Federal Reserve Bank President James
Bullard told CNBC television.
The economy averaged growth of just 1.9 percent last year after
expanding 2.8 percent in 2012.
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The revision left GDP just above the economy's potential growth
trend, which analysts put somewhere between a 2 percent and 2.3
percent pace. Even with the downgrade, the second-half growth pace
was a solid 3.3 percent and a jump from 1.8 percent in the first six
months of the year.
Consumer spending accounted for a large chunk of the revision. It grew
at a 2.6 percent rate, not 3.3 percent as previously reported.
Still, it was the fastest pace since the first quarter of 2012 and
it contributed 1.73 percentage points to GDP growth.
An upward revision to inflation was also a factor.
A price index in the report rose at a 1.0 percent rate, instead of
the previously reported 0.7 percent rate. A core measure that strips
out food and energy costs increased at a 1.3 percent rate, revised
up from a 1.1 percent pace.
"While that is not runaway inflation by any means, it will certainly
alleviate concerns about disinflation," said Omair Sharif, senior
economist at RBS in Stamford, Connecticut.
The contribution from trade was lowered to 0.99 percentage point
from 1.33 percentage points, reflecting a wider trade gap than
previously estimated. Nevertheless, it was the largest contribution
trade has made to GDP growth since late 2010.
Inventories, previously reported to have risen by $127.2 billion in
the fourth quarter, were revised down to $117.4 billion. Even so,
the rise in the stocks was the largest since early 1998.
"The downward revision to inventories is good news for near-term
growth," said Stuart Hoffman, chief economist at PNC Financial
Services in Pittsburgh.
With fewer stocks on their shelves or in their warehouses,
businesses now are more likely to need to place new orders or
otherwise ramp up production to meet demand.
Government spending was revised down by more than half a percentage
point to show its biggest decline in a year.
Business spending was revised sharply higher. Economists said
businesses likely pushed through equipment purchases to take
advantage of tax credits expiring at the end of last year.
"That's going to hurt us a little bit this quarter," said Moody's
Analytics' Sweet.
(Reporting by Lucia Mutikani; Additional reporting by Steven C
Johnson and Rodrigo Campos in New York; Editing by Paul Simao and
Chizu Nomiyama)
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