The US economy grew at a slightly less brisk pace in the fourth quarter than previously estimated, while corporate profits slowed sharply from the previous quarter, government data showed today.
Gross domestic product expanded at a 5.6 per cent annual rate, the Commerce Department said in its final report for the fourth quarter, instead of the 5.9 per cent pace it estimated in February. It was still the fastest pace since the third quarter of 2003.
Analysts polled by Reuters had forecast GDP, which measures total goods and services output within US borders, growing at a 5.9 per cent rate in the October-December period. GDP increased at a 2.2 per cent pace in the third quarter.
The department also said after-tax corporate profits grew 6.5 per cent in the fourth quarter, slowing from a 12.7 per cent rise in the prior period. It was below market expectations for a 10 per cent gain. For all of 2009, after-tax profits fell 6.9 per cent, the biggest decline since 2000.
This makes inventories "leaner, which implies it could create conditions for stronger orders and restocking going forward. We are already seeing that in the first quarter. I expect a modest upward revision (in forecasts) in first-quarter growth," said Richard DeKaser, president of Woodley Park Research in Washington.
Growth in GDP was lowered because contributions from business investment, consumer spending and inventories were revised down.
Much of the economy's recovery from the most brutal downturn since the 1930s has been driven by government stimulus and businesses being less aggressive in reducing inventories.
This has raised concerns that growth could sputter later this year when the boost from the two sources fades, given tepid consumer spending and high unemployment.
When businesses increase inventories or slow the rate at which they are liquidating them, manufacturers raise production and this boosts GDP.
Excluding inventories, the economy expanded at a rate of 1.7 per cent instead of the 1.9 per cent pace estimated last month.
Business inventories fell $19.7 billion in fourth quarter, slightly more than the $16.9 billion estimated last month. They dropped $139.2 billion in the July-September period. The change in inventories added 3.79 percentage points to GDP in the last quarter.
This was the biggest percentage contribution since the fourth quarter of 1987. For the whole of 2009, the economy contracted 2.4 per cent, the biggest decline since 1946, the department said.
There were also small downward revisions to business investment and consumer spending, which contributed to lowering GDP estimates. Business investment rose at a 5.3 per cent rate rather than the 6.5 per cent rate estimated last month.
This reflected reduced spending on structures. Commercial real estate is struggling under the weight of high vacancy rates and tight access to credit.
Spending on new home construction was revised lower to a 3.8 percent rate of increase in the fourth quarter from the 5 per cent pace reported in February. It had grown at an 18.9 per cent pace in the third quarter.
However, sales of new homes are slowing this year, hitting a record low in February.
The rise in consumer spending was adjusted lower to a 1.6 per cent rate from 1.7 per cent. That was below the 2.8 per cent increase in the third quarter, when consumption got a boost from the government's "cash for clunkers" auto purchase program.
Consumer spending contributed 1.16 percentage points to fourth-quarter GDP.
Reuters