U.S. economy slowed in fourth quarter, but growth outlook still favorable

Fri Feb 27, 2015 4:25pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth braked more sharply than initially thought in the fourth quarter amid a moderate increase in business inventories and a wider trade deficit, but strong domestic demand brightened the outlook.

Gross domestic product expanded at a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated last month, the Commerce Department said on Friday. The economy grew at a 5 percent rate in the third quarter.

Growth is poised to pick up in the first quarter now that the threat of an inventory overhang has diminished. However, an exceptionally cold and snowy February, as well as reductions in oil and gas drilling, could limit the pace of expansion.

"The composition of growth is looking much better, we are setting up for a solid quarter for the economy. The first quarter is still work in progress," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.

Businesses accumulated $88.4 billion worth of inventory in the fourth quarter, far less than the $113.1 billion the government had estimated last month.

That resulted in the GDP growth contribution from inventories being cut to one-tenth of a percentage point from 0.8 percentage point previously.

The moderate stock accumulation came as consumer spending grew at its quickest pace since early 2006.

With households bullish about the economy's prospects, thanks to a tightening labor market and lower gasoline prices, consumer spending is likely to remain at lofty levels this year.   Continued...

 
Cargo containers sit idle at the Port of Los Angeles as a back-log of over 30 container ships sit anchored outside the Port in Los Angeles, California, February 18, 2015.  REUTERS/Bob Riha, Jr.