U.S. economic growth outpaces estimates in 4th quarter

The U.S. economy grew at a slightly faster rate in the fourth quarter than previously estimated, boosted by stronger consumer spending. Consumers may be providing more lift to the economy in the current January-March period.

The Commerce Department said Friday that the economy grew at a modest 1.4 per cent annual rate in the October-December period. That was better than the 1 per cent growth rate estimated a month ago but still below the 2 per cent annual growth for the July-September quarter.

Most of the strength in the revision for last quarter came from an upward boost to consumer spending, particularly involving recreation. Exports also were not as weak as previously thought.

The estimated growth of the U.S. gross domestic product — the nation's total output of goods and services — was the government's third and final look at GDP for the fourth quarter.

Weak corporate profits

Friday's report also contained a potentially worrisome sign — a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 per cent in the fourth quarter after a 1.6 per cent drop in the third quarter. Fourth quarter profits were also down 11.5 per cent from a year earlier — the steepest annual drop since 30.8 per cent plunge in the fourth quarter of 2008 at the depths of the financial crisis.

On the other hand, consumer spending, which accounts for 70 per cent of economic activity, grew at an annual rate of 2.4 per cent in the fourth quarter, faster than the 2 per cent growth estimated a month ago.

Also helping boost growth was a slightly smaller drag from the nation's trade deficit: The deficit widened in the fourth quarter but not as much as previously thought. Exports fell at a 2 per cent annual rate, not the 2.7 per cent decline estimated a month ago. Trade subtracted .14 percentage point from growth in the fourth quarter, less than the 0.25 percentage point previously estimated.

A slowdown in stockpiling by businesses reduced growth by 0.22 percentage point, slightly more than the 0.14 percentage point drag previously estimated.

Many economists think growth as measured by the gross domestic product is accelerating in the current quarter to a 2 per cent annual rate. But some analysts have been downgrading their estimates of late, reflecting some weaker-than-expected economic data.

Analysts at forecasting firm Macroeconomic Advisers, for example, on Thursday reduced their forecast of first-quarter GDP growth to a 1.5 per cent annual rate after the release of a weak report on new orders for long-lasting manufactured goods. Those orders dropped 2.8 per cent in February.

Struggling manufacturers

That decline was seen as a sign that the nation's manufacturing sector is still struggling with weakness overseas and a strong dollar, which has made American-made products more expensive in foreign markets.

This year, continued strong gains in hiring could boost household incomes and support solid increases in consumer spending, which accounts for about 70 per cent of economic activity.

This month, the Federal Reserve left its key policy rate unchanged after having raised it from a record low in December. Fed officials also scaled back their expectations for the number of rate hikes this year from four to two.

The officials said they thought the global economy and financial markets still pose risks even though financial markets have stabilized since the year began. Stocks had nosedived after investors worried about how steep the slowdown would be in China, the world's second-largest economy.

Analysts have forecast that for 2016 as a whole, the economy will grow around 2 per cent. That would be down from 2.4 per cent growth for all of 2015, a figure that was not revised in the new report.