US economic growth quickens last quarter with inventory boost

Washington

US economic growth accelerated by more than forecast in the final 3 months of last year, fuelled by the rebuilding of inventories and a pickup in consumer spending.

Gross domestic product (GDP) expanded at a 6.9 per cent annualised rate following a 2.3 per cent pace in the third quarter, the Commerce Department's preliminary estimate showed on Thursday (Jan 27). That was the strongest quarterly growth in over a year.

The median forecast in a Bloomberg survey of economists called for a 5 per cent increase in GDP.

The personal consumption expenditures price index excluding food and energy, an inflation measure followed closely by Federal Reserve officials, grew an annualised 4.9 per cent last quarter. Inventories, which added 4.9 percentage points to GDP growth last quarter, are expected to remain a tailwind for economic growth this year.

Faced with persistent supply shortages, businesses had been relying on inventories to keep up with the robust merchandise demand seen throughout 2021. Companies are now beginning to restock, which will help bolster production.

That is possible in part because personal consumption - while still solid - has cooled from the red-hot pace seen in the first half of 2021. Consumer outlays, the biggest part of the economy, grew at a 3.3 per cent pace last quarter, in line with estimates and up from 2 per cent in the prior period.

However, other economic data suggest that strength was concentrated at the start of the fourth quarter, as Americans pulled forward their holiday shopping to navigate shipping delays and a surge in Covid-19 cases curbed demand for services late in the year. Figures on Wednesday showed a surge in retail and wholesaler stockpiles in December, which may reflect imports that arrived too late for holiday shoppers and the Omicron-related dip in activity.

Real final sales to domestic purchasers, a measure of underlying demand that strips out the trade and inventories components of GDP, increased at a 1.9 per cent pace in the final 3 months of the year, just slightly ahead of the 1.3 per cent rate seen in the third quarter.

Applications for US state unemployment insurance fell for the first time in 4 weeks, partially unwinding a recent spike in claims due to the Omicron variant.

Initial unemployment claims totalled 260,000 in the week ended Jan 22, down 30,000 from the prior period, Labor Department data showed on Thursday. The median estimate in a Bloomberg survey of economists called for 265,000 applications.

Applications declined after a surge in recent weeks amid an uptick in Covid-19 cases across the country. Claims have largely been falling in the past year as companies are desperate to retain and attract talent amid ongoing labour shortages. Continuing claims for state benefits advanced to 1.68 million in the week ended Jan 15.

On an unadjusted basis, claims retreated to 267,573 last week. All except 2 states registered declines in unadjusted claims, with Pennsylvania, New York, and New Jersey posting the biggest decreases. BLOOMBERG