WASHINGTON (REUTERS) - Robust household spending and rising exports kept the US economy on solid ground in the fourth quarter, but stagnant wages could chip away some of the momentum in early 2014.
Gross domestic product grew at a 3.2 per cent annual rate, the Commerce Department said on Thursday, in line with expectations.
While that was a slowdown from the third-quarter's brisk 4.1 per cent pace, it was a far stronger performance than earlier anticipated and was welcome news in light of a 0.3 percentage point drag from October's partial government shutdown and a much smaller contribution to growth from a restocking by businesses.
Earlier in the quarter, many economists were anticipating a growth pace below 2 per cent given that an inventory surge accounted for much of the increase in the July-September period.
Growth over the second half of the year come in at a 3.7 per cent pace, up sharply from 1.8 per cent in the first six months of the year. It was the biggest half-year increase since the second half of 2003.
Consumer spending was the main driver of fourth-quarter growth, but there was also help from other segments of the economy such as trade and business investment.
The advance fourth-quarter GDP was released a day after the Federal Reserve said "growth in economic activity picked up in recent quarters."
The Fed on Wednesday announced another reduction to its monthly bond purchases and appeared to shrug off a surprise sharp slowdown in job growth in December.
Consumer spending rose at a 3.3 per cent rate, the strongest since the fourth quarter of 2010. Consumer spending, which accounts for more than two-thirds of US economic activity, advanced at a 2 per cent pace in the third quarter.
Businesses accumulated US$127.2 billion worth of inventories, the most since the first quarter of 1998, adding 0.42 percentage point to GDP growth. Inventories had increased US$115.7 bilion in the third quarter, contributing 1.67 percentage points to output.
Excluding inventories, the economy grew at a 2.8 per cent rate, up from the third-quarter's 2.5 per cent rate.
SOLID FINAL DEMAND
The sturdy increase in final demand should put the economy on a stronger growth path this year. However, a lack of wage growth could take some edge off consumer spending early in the year.
A feared inventory correction, which did not materialise in the fourth quarter, is now likely to show up in the first three months of the year and weigh on growth, economists say.
In addition, business investment is expected to moderate, given a surprise tumble in orders for capital goods excluding defence and aircraft in December.
Even so, a lessening of the fiscal austerity that gripped Washington last year should keep the economy on a firmer growth path. Growth for the whole of this year is forecast at 2.9 per cent, up from last year's 1.9 per cent.
Wage growth has been stagnant as the economy deals with slack in the labor market. Consumption in the fourth quarter came at the expense of saving.
The saving rate slowed to 4.3 per cent in the fourth quarter from 4.9 per cent in the prior period. Real disposable personal income increased 0.8 per cent in the fourth quarter, following an increase of 3.0 per cent in the third quarter.
Sluggish wages kept inflation pressures benign in the fourth quarter. A price index in the GDP report rose at a 0.7 per cent rate, decelerating from the third-quarter's 1.9 per cent pace.
A core measure that strips out food and energy costs increased at a 1.1 per cent rate after advancing at a 1.4 per cent pace in the July-September period.
The economy in the last quarter also got a boost from exports, thanks to firmer global growth. That, together with declining petroleum imports narrowed the trade deficit.
Business spending on equipment accelerated at a 6.9 per cent rate in the fourth quarter after rising at only a 0.2 per cent pace in the prior three months.
There was a decline in business spending on nonresidential structures in the fourth quarter. A run-up in mortgage rates, which held back home sales and renovations, saw residential investment falling for the first time since the third quarter of 2010.
Government spending contracted at a 4.9 per cent pace, reflecting a 16-day partial shutdown of the federal government in October. The Commerce Department said the shutdown had reduced GDP growth by 0.3 percentage point, through reduction in hours worked by federal employees.