US economy grew surprise 1% in 4th quarter

The US economy grew stronger than expected in the fourth quarter of 2015, but still was sluggish heading into the new year, government data showed Friday.

AFP| Last Updated: Feb 26, 2016, 21:35 PM IST
US economy grew surprise 1% in 4th quarter

The US economy grew stronger than expected in the fourth quarter of 2015, but still was sluggish heading into the new year, government data showed Friday.

The Commerce Department said that gross domestic product, the broad measure of output, expanded at a 1.0 percent annual rate, faster than its previous estimate of 0.7 percent.

The upward revision surprised analysts, who had expected a cut to 0.4 percent amid signs of weakness in the world`s largest economy and a slowdown in the global economy.

Even with the upward revision, fourth-quarter growth marked a sharp deceleration from the 2.0 percent expansion in the third quarter and the robust 3.9 percent pace in the second quarter.

And almost all of the reason for the revision came from an upward revision to inventories, which signals weak demand and were expected to weigh on growth in the first quarter, analysts said.

The department noted stronger inventory investment in the retail trade industries and mining, utilities and construction industries.

"Other things equal, the upward revision to inventories implies weaker growth than currently expected in Q1, because the difference between the level of inventory and where it needs to be -- in order to restore prior norms, relative to sales -- is bigger than previously believed," said Ian Shepherdson of Pantheon Macroeconomics.

Consumer spending, which accounts for two thirds of GDP, rose 2.0 percent rate in the year-end holiday quarter, not the 2.2 percent previously estimated, and a marked slowdown from the 3.0 percent rise in the third quarter.

Reflecting the global slowdown and the strong dollar that makes US exports more expensive, exports fell 2.7 percent, more than seen initially.

Jim O`Sullivan, chief US economist at High Frequency Economics, said that overall the report was unlikely to make a significant impact on first-quarter forecasts.

"Data available so far for Q1 suggest a pickup from the 1.0 percent overall pace, even if inventories are still a bit of a drag," O`Sullivan said. "Our Q1 forecast is for a 2.3 percent pace."