The US economy grew at a 1.6 per cent annual pace in the fourth quarter, slightly better-than-expected, the US government said today in a report that revised up estimates of business inventories and capital spending.
While the upward revision from the originally reported 1.1 per cent pace matched Wall Street estimates, it showed the economy advancing at its slowest rate in three years and well off the 4.1 per cent increase it logged in the third quarter.
Forecasters, however, expect the economy to close out the first quarter with a growth rate north of 4 per cent, helped by warmer-than-usual weather at the start of the year.
Still, the slowdown in economic activity at the end of 2005 appeared to have caught businesses by surprise. After whittling down stocks in the third quarter, business inventories rose by an upwardly revised $30.4 billion dollars in the final three months of the year, giving a boost to growth.
Businesses also spent more on structures and equipment than first thought. Business investment spending rose at a 5.4 per cent rate, compared with an originally reported 2.8 per cent advance.
Government spending was also a touch stronger than first estimated, as were export sales. However, the upward revision to exports was more than offset by higher imports and the US trade gap sliced nearly 1.5 percentage points off growth.
The economy's sluggish fourth-quarter pace reflected the weakest increase in consumer spending in 4.5 years, as well as a slackening in homebuilding activity and a somewhat slower business investment pace.
Inflation in the fourth quarter was a touch higher than first reported. The department said its price index for consumer spending rose at a 2.7 per cent annual rate, compared to an originally reported 2.6 per cent gain.
However, a core price measure that strips out food and energy costs increased at a 2.1 per cent rate, not the 2.2 per cent pace reported a month ago.
The Federal Reserve has raised its key overnight interest rate 14 straight times since June 2004, taking it from a basement-level 1 per cent to a more-normal 4.5 per cent and officials have said further hikes may be needed to ensure inflation does not gain a foothold.