economic activity

Economy in U.S. expanded at revised 0.4% pace in 4Q

BLOOMBERG FILE PHOTO/PAUL TAGGART
THE UNITED STATES economy grew at a 0.4 percent pace during the fourth quarter of 2012, meaning the world's largest economy slowed less than originally forecast.
Posted 3/28/13

WASHINGTON – The U.S. economy slowed less than previously estimated in the fourth quarter, reflecting a bigger gain in business spending and a smaller trade gap.

Gross domestic product rose at a 0.4 percent annual rate, up from a 0.1 percent prior estimate and following a 3.1 percent pace in the third quarter, revised Commerce Department figures showed today in Washington. The fourth-quarter slowdown was due to the biggest slump in military spending since 1972 and a reduction in the rate of inventory building.

The world’s largest economy is projected to accelerate in the first quarter as companies invest in new equipment and rebuild depleted stockpiles, while consumers keep spending in the face of higher taxes. The pace of growth and efforts to drive down joblessness help explain why Federal Reserve policy makers are sticking to asset-purchase plans.

“This is not particularly strong growth compared to what we want to be seeing, especially to bring the unemployment rate lower, but looking at the details of the report, like business investment and inventories, the elements for growth to pick up are really there,” Robert Rosener, an economist at Credit Agricole CIB in New York, said before the report. Rosener was the second-best GDP forecaster in the past two years, according to data compiled by Bloomberg,

The median projection in a Bloomberg survey for the Commerce Department’s third estimate of fourth-quarter GDP called for a 0.5 percent increase. Forecasts from the 79 economists surveyed ranged from 0.1 percent to 0.8 percent.

For all of 2012, the world’s largest economy expanded 2.2 percent after a 1.8 percent gain in the prior year.

Corporate profits

Today’s report offered a first look at corporate profits. Earnings increased 2.3 percent in the fourth quarter after rising 2.4 percent in the prior period. They climbed 3.1 percent from the same time in 2011.

A bigger increase in the rate of business investment in structures and a smaller trade gap accounted for the upward revisions to fourth-quarter growth.

Corporate spending on buildings increased at a revised 16.7 percent annual rate in the fourth quarter, the most in more than a year, after a previously reported 5.8 percent pace.

A revision to the trade gap showed a smaller difference between exports and imports. The deficit shrank to $384.7 billion from $395.2 billion in the previous three months. The narrowing contributed 0.33 percentage point to growth, compared with a previous estimate of 0.24 point.

Federal Reserve

While the expansion slowed last quarter, Fed officials have said they see signs the economy is poised for a pickup in 2013. Data on the labor market, consumer spending and business investment suggest “a return to moderate economic growth following a pause late last year,” the Federal Open Market Committee said in a March 20 statement.

The central bank last week repeated that it would hold its benchmark interest rate near zero as long as joblessness stayed above 6.5 percent and the outlook for inflation was below 2.5 percent. It also said it would keep up its bond buying at a pace of $85 billion a month to bolster the expansion.

Consumer spending, about 70 percent of the economy, climbed at a 1.8 percent rate last quarter, revised from a previously estimated 2.1 percent, today’s figures showed.

Business spending on equipment and software climbed at a 11.8 percent pace after dropping at a 2.6 percent rate in the previous quarter. It added 0.82 percentage point to growth.

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