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U.S. Economy Grows In Q4 But By Much Less Than Expected

U.S. Economy Grows In Q4 But By Much Less Than Expected
2/28/2013 9:23 AM ET

While fourth quarter U.S. GDP data was revised to show economic growth compared to the previously reported contraction, the pace of growth fell well short of economist estimates.

A report released by the Commerce Department on Thursday said GDP increased at an annual rate of 0.1 percent in the fourth quarter compared to the 0.1 percent drop that was originally reported.

Economists had been expecting a more substantial upward revision, with the consensus estimate calling for the revised report to show 0.5 percent growth.

Despite the upward revision, the modest growth in the fourth quarter still reflected the slowest pace of growth since a matching increase in the first quarter of 2011.

Although the pace of growth was much slower than expected, Paul Ashworth, Senior U.S. Economist at Capital Economics, said, "Most of that shortfall was because inventories are now estimated to have subtracted an even bigger 1.6% from overall GDP growth, up from the original 1.3%."

"If anything, that adds to the upward risks to our forecast that first-quarter GDP growth will increase by 2.0% annualized, even as the payroll tax hike hits consumption," he added.

The report also showed that the pace of consumer spending growth was downwardly revised to 2.1 percent from 2.2 percent, although the increase still reflects an acceleration from the 1.6 percent growth seen in the third quarter.

The Commerce Department said that the upward revision compared to the initial estimated primarily reflected upward revisions to exports and non-residential fixed investment as well as a downward revision to imports, which are a subtraction in the calculation of GDP.

"We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests," Ashworth said.

"The only weakness was in the slowdown in inventory accumulation and the enormous 22.0% annualized collapse in defense spending," he added. "Without those two volatile components, GDP would have increased by a very healthy 3.0%."

The Commerce Department also said its reading on core consumer prices rose by an unrevised 0.9 percent in the fourth quarter following a 1.1 percent increase in the third quarter.

by RTT Staff Writer

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