US growth up 1.4% in fourth quarter on consumer spending

WASHINGTON • The United States economy expanded in the fourth quarter at a faster pace than previously estimated, supported by stronger household spending on services. The revised 1.4 per cent increase in gross domestic product, the value of all goods and services produced, compares with the Commerce Department's previous estimate of 1 per cent, according to figures issued yesterday.

The economy grew 2 per cent in the third quarter.

The report also showed that corporate profits dropped last year by the most in seven years. The earnings slump illustrates the limits of an economy struggling to gather steam at the start of this year.

Some companies, encumbered by low commodity prices and sluggish foreign markets, are cutting back on investment while a firm labour market and low inflation encourage households to keep shopping.

"The pace of growth slowed as we ended 2015, though consumer spending is still the primary underpinning of this economic expansion," said Mr Sam Bullard, a senior economist at Wells Fargo Securities, before the report.

"Any pick-up we might see is still likely going to be capped, given the overall global picture."

The fairly solid pace of consumer spending, which accounts for more than two-thirds of US economic activity, underscores the economy's underlying strength and should further allay fears of a recession, which triggered a massive stock market selloff early this year.

Household purchases, which account for almost 70 per cent of the economy, rose at a 2.4 per cent annual pace, compared with a previously estimated 2 per cent rate.

Personal consumption added 1.66 percentage points to growth.

Weak overseas demand has weighed on net exports, with trade subtracting 0.14 percentage point from overall growth after a previously reported 0.25 percentage point. The gap in goods and services trade may stay wide as the US economy plods ahead and foreign markets, including China, struggle to improve.

Businesses accumulated US$78.3 billion (S$107 billion) worth of inventory rather than the US$81.7 billion reported last month. As a result, inventories subtracted 0.22 percentage point from GDP growth. Profits after tax with inventory valuation and capital consumption adjustments declined at an annual rate of 8.4 per cent, the biggest drop since the first quarter of 2014, after dropping at a 1.7 per cent pace in the third quarter.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 26, 2016, with the headline 'US growth up 1.4% in fourth quarter on consumer spending'. Print Edition | Subscribe