US economic growth revised higher, boosted by consumer spending

WASHINGTON: US economic growth slowed less than previously reported in the fourth quarter as robust consumer spending provided a boost that was partially offset by the largest gain in imports in two years.
Gross domestic product increased at a 2.1 per cent annualized rate instead of the previously reported 1.9 per cent pace, the Commerce Department said on Thursday in its third GDP estimate for the period.
The economy grew at a 3.5 per cent rate in the third quarter. Despite the upward revision to the fourth quarter, the economy grew only 1.6 per cent for all of 2016, its worst performance since 2011, after expanding 2.6 per cent in 2015. There are signs that economic activity slowed further in the first quarter, with the trade deficit widening in January and both consumer and construction spending weakening.
With the labour market near full employment, the data likely understate the health of the economy — GDP also tends to be weaker in the first quarter because of calculation issues the government has acknowledged and is trying to resolve.
“Some of this softness is due to seasonal adjustment issues that will reverse later in the year,” said Gus Faucher, Deputy Chief Economist at PNC Financial in Pittsburgh. “Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages.”
The Atlanta Federal Reserve is forecasting GDP rising at a rate of 1.0 per cent in the first quarter.
TIGHTENING LABOUR MARKET: The government also reported that corporate profits after tax with inventory valuation and capital consumption adjustments increased at an annual rate of 2.3 per cent in the fourth quarter after rising at a 6.7 per cent pace in the previous three months.
Profits were held back by a $4.95 billion settlement between the US subsidiary of Volkswagen AG and the US federal and state governments for violation of environmental regulations. As a result, the economy grew at only a 1.0 per cent rate when measured from the income side, braking sharply from the 5.0 per cent pace of growth in the third quarter.
Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was revised up to a 3.5 per cent rate in the fourth quarter. It was previously reported to have risen at a 3.0 per cent rate.
Consumer spending is being supported by a tightening labour market. A separate report from the Labour Department on Thursday showed initial claims for state unemployment benefits fell 3,000 to a seasonally adjusted 258,000 for the week ended on March 25. — Reuters