U.S. Economic Growth In 4Q Revised Lower

(Photo: Reuters)

U.S. economic growth in the fourth quarter slowed more sharply than initial government estimates indicated fueled by a wider-than-reported trade deficit, which subtracted 1.15 percentage points from GDP growth.

The Commerce Department said Friday that a slow pace of stock accumulation by businesses and a large trade deficit slowed gross domestic product to a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated last month.

The economy grew at a 5 percent rate in the third quarter, but the 4Q revision was not in line with most expectations. As PPD previously reported, the trade deficit in December widened sharply to its highest level since 2012 despite lower energy costs, indicating initial 4Q growth estimates were inflated and would be revised down.

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. However, not that there is a high bar to beat, but it is still the fastest since the first quarter of 2006.

An alleged tightening in the labor market and lower gasoline prices were expected to prop up domestic consumer demand. But the number of Americans filing first-time jobless claims rose significantly last week, a clear indicator the labor market isn’t tightening as often argued. Initial unemployment benefit claims rose by 31,000 to a seasonally adjusted 313,000 in the week ended Feb. 21.

Business spending on equipment was revised to show it rising at a 0.9 percent rate, rather than the previously reported 1.9 percent contraction. Growth in final sales to domestic purchasers was revised to a 3.2 percent pace from the previous 2.8 percent rate, while 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 revised down to one-tenth of a percentage point from an initially reported 0.8 percentage point. However, it is possible that the slower pace of inventory accumulation will positively impact 1Q GDP growth.

Strong domestic demand sucked in more imports than previously reported, resulting in a trade deficit, which subtracted 1.15 percentage points from GDP growth, revised from the previously reported 1.02 percentage point drag.

Residential construction spending was also revised down, while 4Q government spending was not as weak as previously reported.