The U.S. economy grew at a faster pace 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% annual rate, up from a 0.1% prior estimate and following a 3.1% 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.
“Certainly we would like to see stronger growth, but we did have some one-time drags at the end of 2012,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected the GDP revision. “I would expect growth to pick up through 2013. Consumers spending looks like it’s holding up pretty well despite the increase in taxes. The housing market is certainly a big plus. Then business investment growth is pretty good. Profits are good.”
The median projection in a Bloomberg survey for the Commerce Department’s third estimate of fourth-quarter GDP called for a 0.5% increase. Forecasts from the 79 economists surveyed ranged from 0.1% to 0.8%.
Another report showed more Americans than forecast filed applications for unemployment benefits last week, bringing a halt to the recent progress in the labor market. First-time jobless claims rose by 16,000 to 357,000 in the week ended March 23, the highest level in more than a month, the Labor Department said today in Washington. Economists surveyed by Bloomberg projected 340,000 claims.
Stock-index futures held gains after the figures. The contract on the Standard & Poor’s 500 Index expiring in June rose 0.1% to 1,557.9 at 8:35 a.m. in New York.
For all of 2012, the world’s largest economy expanded 2.2% after a 1.8% gain in the prior year.
Today’s report offered a first look at corporate profits. Earnings increased 2.3% in the fourth quarter after rising 2.4% in the prior period. They climbed 3.1% 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% annual rate in the fourth quarter, the most in more than a year, after a previously reported 5.8% 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.
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% and the outlook for inflation was below 2.5%. 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% of the economy, climbed at a 1.8% rate last quarter, revised from a previously estimated 2.1%, today’s figures showed.
Business spending on equipment and software climbed at a 11.8% pace after dropping at a 2.6% rate in the previous quarter. It added 0.82 percentage point to growth.
Residential investment, a bright spot for the U.S. expansion, rose at a revised 17.6% pace from October through December following a 13.5% rate in the third quarter.
Inventories subtracted 1.52 percentage points from fourth- quarter growth compared with a previously reported 1.55 percentage points. Stockpiles were rebuilt at a $13.3 billion annual pace after a $60.3 billion rate in the third quarter.
Leaner inventories may make way for a first-quarter pickup in production as consumer spending holds up amid higher payroll taxes. Congress allowed the payroll tax to return to its 2010 level of 6.2% from 4.2% at the start of the year, which means an American who earns $50,000 is taking home about $83 less a month.
Lawmakers also didn’t work out a plan to reduce the federal budget deficit, which means automatic across-the-board spending cuts, known as sequestration, began taking place on March 1, weighing on the economy at a time when government outlays were already a drag.
Government spending subtracted 1.4 percentage points from growth in the fourth quarter. Military outlays declined at 22.1% annual pace, the biggest decrease since the third quarter 1972.
“As we entered 2013, we were cautiously optimistic in light of the economic uncertainty in many of our markets,” Chris Conway, chief executive officer of Clarcor Inc., said during a March 21 earnings call. “We expect economic activity in many of our markets to accelerate, but we remain cautious as current indicators point to uncertainty still. Europe continues to struggle, China growth is moderating and the U.S. continues to deal with political stalemate.”
Clarcor, based in Franklin, Tennessee, makes industrial products like Baldwin air filters.
The economy will expand at a 2% rate in the first quarter, according to the median estimate of 73 economists surveyed by Bloomberg from March 8 to March 13.
Real gross domestic income for the fourth quarter was also released today for the first time. The measure, which shows the money earned by the people, businesses and government agencies whose purchases go into calculating growth, rose at a 2.6% annual rate from October through December after a 1.6% increase in the third quarter.
Over the last four quarters, real GDP rose 1.7% compared with a 1.8% gain in gross domestic income, the Commerce Department said.