THE US economy grew at a solid clip in the fourth quarter amid robust consumer spending, the government confirmed on Wednesday (Feb 28), which bodes well for the outlook this year despite a weak start because of bad weather.

The report from the Commerce Department showed a much stronger growth profile last quarter, with upgrades to consumer spending, state and local government investment as well as residential and business outlays.

“Though weather wreaked havoc on some of the data for January, including retail sales, housing starts, and home sales, risks are still weighted towards the upside for growth early this year,” said Ryan Sweet, chief US economist at Oxford Economics. “A weather-related rebound in activity in February coupled with a recent surge in tax refunds should provide a boost to growth in retail sales.”

Gross domestic product increased at a 3.2 per cent annualised rate last quarter, revised slightly down from the previously reported 3.3 per cent pace, the Commerce Department’s Bureau of Economic Analysis said in its second estimate of fourth-quarter GDP growth.

Economists polled by Reuters had expected that GDP growth would be unrevised. The modest downward revision reflected a downgrade to private inventory investment, which was now estimated to have increased at a US$66.3 billion rate instead of the previously reported US$82.7 billion pace.

Inventories subtracted 0.27 per cent percentage point from GDP growth instead of being almost neutral as initially thought.

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The economy grew at a 4.9 per cent pace in the July-September quarter. It expanded 2.5 per cent in 2023, an acceleration from 1.9 per cent in 2022, and is growing above what Federal Reserve officials regard as the non-inflationary growth rate of 1.8 per cent.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 3 per cent rate. It was previously estimated to have grown at a 2.8 per cent pace. Domestic demand was stronger than initially thought, growing at a 2.9 per cent rate instead of the previously reported 2.6 per cent rate.

Inflation was fairly mild last quarter, though revised slightly up from previously reported estimates. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose at a 2.1 per cent pace.

The so-called core PCE price index was initially reported to have increased at a 2 per cent rate. Core inflation last quarter was a touch above the Fed’s 2 per cent target, and continues to be driven by higher housing costs.

PCE services inflation excluding energy and housing increased at a 2.7 per cent rate, revised up from the previously estimated 2.6 per cent pace. Policymakers are watching this so-called super core inflation measure to assess progress in their fight against inflation.

Financial markets expect the Fed to start cutting interest rates in June, a bet that has been pushed back from May. Since March 2022, the US central bank has raised its policy rate by 525 basis points to the current 5.25 to 5.50 per cent range.

Growth in business investment was raised last quarter to a 2.4 per cent rate from the previously estimated 1.9 per cent pace, driven by upgrades to spending on nonresidential structures like factories.

But business investment in equipment was revised down to show it contracting at a 1.7 per cent pace instead of rising at a 1 per cent.

Business spending on equipment appears to have remained weak at the start of the first quarter as shipments of non-defence capital goods fell by the most in more than three years in January. While retail sales, housing starts, durable goods orders and production at factories dropped in January, the declines were blamed on freezing temperatures as well as difficulties adjusting the data for seasonal fluctuations at the start of the year. Economists are not forecasting a recession this year.

Goods trade gap widens

A separate report from the Commerce Department on Wednesday showed a widening in the goods trade gap last month.

The goods trade deficit increased 2.6 per cent to US$90.2 last month, the Commerce Department’s Census Bureau said. Exports rose 0.2 per cent to US$170.4 billion. They were outpaced by a 1.1 per cent jump in imports to US$260.6 billion. Exports added 0.69 percentage point to GDP growth last quarter.

The report also showed wholesale inventories declined 0.1 per cent in January after rising 0.4 per cent in the prior month. Stocks at retailers increased 0.5 per cent after advancing 0.6 per cent in December. REUTERS