US Economy Expanded at Slower Pace Than First Estimated
The economy in the U.S. expanded at a slower pace in the fourth quarter than previously estimated, giving the expansion less momentum heading into 2014.
Gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the 3.2 percent gain issued last month, revised figures from the Commerce Department showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 2.5 percent increase.
Smaller gains in consumer spending, inventories and exports weighed on an economy already slowed by the 16-day partial shutdown of federal agencies in October and weaker government spending. Less fiscal restraint this year and further progress in the labor market probably will boost GDP after unusually harsh weather curbed growth in early 2014.
'You should see some pent-up activity show up in the second quarter of the year,' said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, who correctly projected the fourth-quarter pace of growth. For 2014, 'it's a less-headwinds story rather than fundamental improvement in the internals of the economy.'
Stock-index futures held earlier losses after the report. The contract on the Standard & Poor's 500 Index maturing in March fell 0.1 percent to 1,852 at 8:55 a.m. in New York.
Economists' projections for GDP, the value of all goods and services produced, ranged from 1.8 percent to 3 percent. Today's estimate is the second of three for the quarter, with the final reading next month when more data is available.
The economy grew 4.1 percent in the third quarter. For all of 2013, the economy expanded 1.9 percent after a 2.8 percent increase in the prior year.
Consumer Spending
Household purchases rose at a 2.6 percent pace, down from an originally reported 3.3 percent and less than the 2.9 percent median forecast of economists surveyed by Bloomberg. Nonetheless, the increase was the biggest since the first quarter of 2012. Spending climbed at a 2 percent pace in the third quarter.
Today's GDP report also reflected smaller gains from inventories. Stockpiles, which might be moderating due to weaker-than-expected consumer demand, contributed 0.14 percentage point to growth compared with a prior estimate of 0.42 point.
Business investment was one of the few areas of the economy that looked better in the fourth quarter than previously estimated. Spending on new equipment climbed at a 10.6 percent annualized rate, up from a prior 6.9 percent gain and the best performance since the third quarter of 2011. Purchases of intellectual property, including computer software, rose at an 8 percent rate, the biggest advance in six years.
Government Cutbacks
Government spending fell at a 5.6 percent pace from the previous three months, subtracting about 1 percentage point from overall growth. Spending by federal agencies decreased at a 12.8 percent rate. For all of 2013, federal government spending declined 5.2 percent, the most since 1971.
Today's report also included revisions to third-quarter personal income. Wages and salaries increased by $45.2 billion, little changed from the previously reported gain of $46.1 billion. They rose about $69.7 billion in the fourth quarter.
The data also showed that while price pressures remained muted, they were less subdued than previously estimated. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.3 percent annualized pace compared with a 1.1 percent rise prior estimate. The gauge climbed at a 1.4 percent pace in the third quarter.
Weather's Impact
Unusually harsh weather and a setback in labor market gains restrained retail sales in January, signaling the economy was off to a slower start in 2014. Sales fell 0.4 percent after a revised 0.1 percent drop in December that was previously reported as an increase, Commerce Department data showed earlier this month.
The sales decline has companies such as Camden, New Jersey-based Campbell Soup Co. hopeful that warmer temperatures will recharge demand.
'We are in the midst of a turbulent period --retailers are wrestling with challenged consumers who remain under pressure,' Chief Executive Officer Denise Morrison said on a Feb. 14 earnings call.
'We believe the weakness that Campbell and other food companies experienced in January was partially related to the extreme weather conditions, which dealt a blow to the U.S. economy,' said Morrison. 'We expect to be competing in a more typical environment over the remainder of the year.'
Housing Setback
Inclement weather also might have weighed on the housing market as frozen ground kept builders from starting work and buyers from shopping for properties. Last month was the coldest start to the year since 2011, according to the National Oceanic and Atmospheric Administration.
Housing starts fell 16 percent last month to an 880,000 annualized rate following December's revised 1.05 million. The decrease was the biggest since February 2011. Permits for future projects showed a smaller drop in the report -- a sign activity may stabilize as the weather improves.
'Certainly, in the most recent quarter, weather conditions in most states across the country had an adverse impact on sales,' Larry Sorsby, chief financial officer at Red Bank, New Jersey-based Hovnanian Enterprises Inc., said at a Feb. 25 finance conference. 'There's not as much job growth to give the consumers as much confidence as they need for us to have a typical homebuilding recovery.'
Payroll Gains
Acceleration in economic growth also will depend on further progress in the labor market. Payrolls rose a less-than-projected 113,000 in January after a 75,000 increase the prior month, Labor Department data showed earlier this month.
Unemployment last month declined to 6.6 percent, the least since October 2008, from 6.7 percent in December. Economists are projecting little change to the pace of hiring in 2014, with average monthly payroll gains of 194,000 compared with 193,500 last year, according to 47 estimates in a Bloomberg survey conducted Feb. 7-12.
Federal Reserve policy makers are looking past frigid temperatures and snowy conditions, maintaining reductions in their monthly bond buying based on their more positive outlooks for growth and employment. The central bankers in January reduced purchases to $65 billion a month in the second $10 billion cut of unprecedented accommodation that was meant to stimulate the recovery.
Fed Chair Janet Yellen, speaking before the Senate Banking Committee yesterday, said only a 'significant' change in the outlook for the economy would prompt a slower pace of tapering.
After expanding at a 2.1 percent pace in the first quarter, growth will pick up to a 2.8 percent rate in the following three months, according to the median estimate of economists surveyed by Bloomberg this month.
To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net
To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net
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