BackUS economy expands more than previously estimated
GDP grew at 2.6% annualized rate in Oct-Dec period, more than 2.4% gain reported last month
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Washington: The US economy grew more rapidly in the fourth quarter than previously estimated as consumer spending climbed by the most in three years, showing the expansion had momentum heading into this year’s harsh winter.
Gross domestic product grew at a 2.6% annualized rate from October through December, more than the 2.4% gain reported last month, figures from the commerce department showed on Thursday in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 2.7% increase.
Robust consumer spending on services, particularly health care, helped accelerate the expansion, a sign that this year’s slowdown is partly due to heavy snowfall and freezing temperatures. Companies including retailers such as Macy’s Inc. are waiting for the weather to improve to get a clearer picture of the economy’s health.
The underlying strength in the economy is reasonably good and was accelerating before we had the bad weather, David Berson, chief economist at Nationwide Insurance in Columbus, Ohio, said before the report. Once we get past the first quarter and we get a real GDP reading, in the second quarter we should see a rebound.
Forecasts in the Bloomberg survey for GDP — the value of all goods and services produced in the US — ranged from gains of 2.2% to 3.1%. Thursday’s estimate is the third and final for the quarter. For all of 2013, the economy expanded 1.9% after a 2.8% increase in the prior year.
Fewer claims
Another report on Thursday showed fewer Americans than forecast filed applications for unemployment insurance payments last week, indicating the job market was improving. The number of claims for jobless dropped to 311,000 in the week ended 22 March, the fewest since late November, from 321,000 the prior period. The median forecast of economists surveyed by Bloomberg projected 323,000.
Stock-index futures held earlier gains after the reports. The contract on the Standard & Poor’s 500 Index maturing in June rose 0.2% to 1,845.3 at 8:32 am in New York.
Consumer purchases, which account for almost 70% of the economy, advanced at a 3.3% in the fourth quarter, the most since the last three months of 2010 and surpassing the 2.6% gain previously reported, according to Thursday’s commerce department report. It added 2.2 percentage points to growth from October through December and followed a 2% advance in the prior three-month period.
More spending
Household outlays on services climbed at a 3.5% annualized rate, the biggest gain since the second quarter of 2005. The revision from the prior estimate of 2.2% reflected gains in health care, financial services and electricity.
Sales at US retailers rose in February for the first time in three months, the commerce department reported earlier this month, a sign that consumer spending might be regaining traction. Purchases increased at department stores, sporting goods retailers and Internet merchants.
The job market is showing signs of thawing. Payrolls rose more than projected in February, with employers adding 175,000 workers, the labour department reported earlier this month. Unemployment climbed to 6.7% from a 5-year low of 6.6% the prior month. The economy added 190,000 jobs in March, according to a preliminary median forecast in a Bloomberg survey.
Abnormally cold weather probably slowed fourth-quarter growth by 0.4 points and is expected to shave a full percentage point from first-quarter GDP, according to an analysis from Macroeconomic Advisers in St. Louis.
Snow cover
Between December and February, snow covered 1.42 million square miles in the contiguous US, the tenth-largest seasonal snow cover in records dating to 1966, according to the National Climatic Data Center. More than 90% of the Great Lakes were frozen at the beginning of March, the second-largest ice cover in records going back to 1973. Energy demand was 27% above average.
The world’s largest economy will grow at a 1.8% pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg. Macroeconomic Advisers projects a 1.5% gain.
In warm-weather markets, business is doing extremely well, Macy’s chief financial officer Karen Hoguet said at a 25 March conference. Other places we’ve had such up-and-down weather that it’s a little bit harder to know what’s weather, what’s the consumer, what’s really happening. I don’t think I would say that the consumer is overwhelmingly excited about spending.
Other challenges
In addition to cold and snow, the economy in the first quarter of 2014 has been challenged by expiring unemployment aid for 1.3 million job-seekers, which probably to a slowdown in spending, and the loss of dozens of corporate tax breaks.
The biggest headwind and biggest unknown is what’s going to happen with the consumer, said Robert Gross, chief executive officer of Monro Muffler Brake Inc in Rochester, New York, which operates tire and auto service centers in 22 states. Business, he said, is choppy.
The bigger gain in consumer spending last quarter was partly offset by a smaller increase in business investment, reflecting diminished gains in inventories and software spending, Thursday’s report showed.
Corporate investment in equipment climbed at a 10.9% annualized pace, the most in more than two years. A similar advance will be difficult to sustain this quarter.
Investment Outlook
Orders for non-military capital goods excluding aircraft dropped 1.3% in February after a 0.8% gain the prior month, the commerce department reported on Wednesday. The category, part of the durable goods report, is considered a proxy for corporate-spending prospects and reflected cooling demand for machinery, communications gear and computers.
After dropping at a 7.9% pace in the fourth quarter, residential construction will probably not show much of a rebound at the start of this year.
Inclement weather also has weighed on housing this quarter as frozen ground kept builders from starting work and buyers from shopping. New home sales fell in February to their lowest in five months, the commerce department reported this week. Housing starts last month dropped to the lowest level since October, another report showed last week.
Thursday’s report for the first time included a measure of corporate profits. Before-tax earnings rose 2.2% after climbing 1.9% in the prior period. Profits were up 6.2% from the end of 2012.
Price pressures remain muted. Excluding volatile food and energy costs, inflation tied to consumer-spending patterns climbed at a 1.3% annualized rate in the fourth quarter, compared with a 1.4% gain in the prior three months.
It’s fallen short of Federal Reserve policy makers’ 2% goal for the past seven quarters. BLOOMBERG
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