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 Gross domestic product expanded at a 2.2 percent annual pace,
revised down from the 2.6 percent pace estimated last month, the
Commerce Department said on Friday. The economy grew at a 5 percent
rate in the third quarter.
Growth is poised to pick up in the first quarter now that the threat
of an inventory overhang has diminished. However, an exceptionally
cold and snowy February, as well as reductions in oil and gas
drilling, could limit the pace of expansion.
"The composition of growth is looking much better, we are setting up
for a solid quarter for the economy. The first quarter is still work
in progress," said Ryan Sweet, a senior economist at Moody's
Analytics in West Chester, Pennsylvania.
Businesses accumulated $88.4 billion worth of inventory in the
fourth quarter, far less than the $113.1 billion the government had
estimated last month.
That resulted in the GDP growth contribution from inventories being
cut to one-tenth of a percentage point from 0.8 percentage point
previously.
The moderate stock accumulation came as consumer spending grew at
its quickest pace since early 2006.
With households bullish about the economy's prospects, thanks to a
tightening labor market and lower gasoline prices, consumer spending
is likely to remain at lofty levels this year.
A second report showed the University of Michigan's final February
reading on the overall index on consumer sentiment was 95.4, higher
than the initial reading of 93.6.
While that was a retreat from January's reading of 98.1, it was the
second highest level since January 2007.
"A more confident consumer is likely to spend more on big ticket
items and other discretionary items, and looking ahead, we expect
consumer spending ... to outpace 2014," said Kristin Reynolds, an
economist at IHS Global Insight in Lexington, Massachusetts.
First-quarter growth estimates currently range between a rate of 2.4
percent and 3 percent.
U.S. stocks were little changed, while prices for U.S. government
debt rose. The dollar was flat against a basket of currencies.
ROBUST CONSUMER SPENDING
Growth in consumer spending, which accounts for more than two-thirds
of U.S. economic activity, was revised down by one-tenth of a
percentage point to a 4.2 percent pace in the fourth quarter, still
the fastest since the first quarter of 2006.
In another positive for the economy, business investment was not as
weak as previously reported, with spending on equipment revised to
show it rising at a 0.9 percent rate instead of the previously
reported 1.9 percent contraction.
Growth in spending on intellectual products was the strongest since
early 2000. All signs point to an acceleration in business
investment in the first quarter, with data on Thursday showing a
rebound in spending intentions in January after four straight months
of declines.
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But lower oil prices have caused a drop in drilling and exploration
activity. The impact is yet to be felt in the data.
Another report on Friday showed factory activity in the Midwest in
February plunged to its lowest level since July 2009.
Activity was likely dampened by bad weather and a long-running labor
dispute at West Coast ports, which has since been resolved.
The Commerce Department data showed a key measure of domestic demand
was revised to a 3.2 percent pace for the fourth quarter from the
previous 2.8 percent rate. It was the third straight quarter of
growth above a 3 percent rate.
Strong domestic demand sucked in more imports than previously
reported in the fourth quarter, resulting in a trade deficit, which
subtracted 1.15 percentage points from GDP growth instead of the
previously reported 1.02 percentage point drag.
Despite the strong consumption, inflation pressures were muted, with
the personal consumption expenditures price index falling at a 0.4
percent rate - the weakest reading since early 2009. The PCE index
was previously reported to have declined at a 0.5 percent pace.
Excluding food and energy, prices rose at an unrevised 1.1 percent
pace, the slowest since the second quarter of 2013.
The low inflation environment suggests little urgency for the
Federal Reserve to start raising interest rates from near zero,
where they have been since December 2008.
Residential construction spending in the fourth quarter was revised
down, while government spending was not as weak as previously
reported.
Strong job gains are expected to lift housing this year. A third
report on Friday from the National Association of Realtors showed
contracts to purchase previously owned homes rose 1.7 percent in
January to their highest level in 1-1/2 years.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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