U.S. Economy Grew at 1.7% Annual Rate in 4th Quarter
Bloomberg | 30 Mar 2006 | Bloomberg
March 30 (Bloomberg) -- The U.S. economy grew at an annual rate of 1.7 percent last quarter, the slowest pace in almost three years, while an inflation measure watched by the Federal Reserve rose more than earlier reported.
The final revision of gross domestic product compares with a growth rate of 1.6 percent reported last month, the Commerce Department said today in Washington. The inflation gauge rose at an annual rate of 2.4 percent, up from 2.1 percent.
Fed policy makers this week called the fourth-quarter slowdown ``temporary'' and lifted their benchmark rate for a 15th consecutive time. Central bankers have said they would be comfortable with 1 percent to 2 percent inflation. Treasury notes fell after the report.
``This will get people thinking a little bit more about the inflation risks the Fed has been talking about,'' said John Shin, an economist at Lehman Brothers Holdings Inc. in New York.
Consumer spending accelerated early in 2006 and companies stepped up the pace of restocking, economists said. Business investment in inventories accounted for most of the expansion and is contributing to faster growth this year.
``We already knew that economic growth in the fourth quarter was depressed,'' said Richard Yamarone, chief economist at Argus Research Corp. in New York. ``The pace of economic growth in the first quarter may be three times as fast, generating a lot of momentum as we head into the summer.''
Faster Growth Forecast
Fourth-quarter growth matched the median estimate in a Bloomberg News survey and was the weakest since the first quarter of 2003. The expansion will quicken to 4.7 percent this quarter, according to a Bloomberg survey published on March 8.
The core personal consumption expenditures price index, a measure of prices tied to consumer spending and excluding energy and food, rose at an annual rate of 2.4 percent last quarter. The index compared with a 2.1 percent pace reported earlier and a 1.4 percent rate in the prior quarter.
First-time claims for U.S. unemployment benefits unexpectedly fell by 10,000 last week to 302,000, the Labor Department said today.
Treasury notes fell after the reports. The yield on the benchmark 10-year note rose 3 basis points to 4.83 percent at 8:58 a.m. in New York. A basis point is 0.01 percentage point.
For all of last year, the economy grew 3.5 percent, compared with 4.2 percent in 2004.
Consumer Spending
Consumer spending, which accounts for more than two-thirds of the economy, expanded at a 0.9 percent annual pace in the fourth quarter, compared with the 1.2 percent pace initially reported and a 4.1 percent gain in the third quarter. The fourth-quarter rate was the slowest since the first quarter of 1995 and was due to tepid auto sales in October.
Business fixed investment, which includes spending on commercial construction as well as equipment and software, grew at an annual rate of 4.5 percent in the fourth quarter, compared with a 5.4 percent gain reported earlier and an 8.5 percent increase in the prior quarter.
Spending on equipment and software grew at an annual rate of 5 percent, revised from 6.2 percent. The gain followed a 10.6 percent rate of increase in the third quarter.
Stockpiles
Inventories added 1.89 percentage points to economic growth in the final three months of last year, the first contribution in three quarters and the biggest since the first three months of 2002. A government report earlier this month showed that an increase in sales during January brought the supply of goods on shelves to a record-low 1.24 months, suggesting factories will lift production as businesses restock.
The trade deficit, which swelled to its widest ever in October, subtracted 1.36 percentage points from fourth-quarter growth instead of the 1.4 percentage points previously reported.
Government spending fell last quarter at an annual rate of 0.8 percent, compared with the 0.7 percent decline reported last month and a 2.9 percent third-quarter increase.
Companies boosted inventories at an annual rate of $37.9 billion, compared with the $30.4 billion reported Feb. 28 and a reduction of $13.3 billion in the third quarter.
Construction
Residential construction rose at an annual rate of 2.8 percent, compared with the 2.6 percent rate reported last month and a 7.3 percent gain the previous three months.
Gross domestic product, the total value of goods and services generated during the period, rose to $11.25 trillion at an annual rate for the quarter after adjusting for inflation. It was $11.13 trillion for the year.
Before inflation, GDP grew at a 5.2 percent annual pace to $12.77 trillion for the quarter and totaled $12.49 trillion for the year.
Demand is bouncing back this quarter as an improving labor market gives Americans more to spend on autos and other consumer goods, economists said. First-quarter consumer spending will probably rise at a 4.7 percent annual rate, based on the median estimate of economists surveyed by Bloomberg News from Feb. 27 to March 7.
``Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace,'' the Fed said in a March 28 statement. The same day, the Fed raised the main U.S. interest rate a quarter point to 4.75 percent and held out the prospect of further increases to keep inflation under control.
The GDP price index, a gauge of prices tied to the report, rose at an annual rate of 3.5 percent in the fourth quarter, compared with the 3.3 percent estimated in last month's report and a 3.3 percent third-quarter gain.
`Very Nice Pace'
``I think the economy is growing at a very nice pace,'' James Tisch, chief executive officer at Loews Corp., said in a March 27 interview. New York-based Loews is a holding company that is an investor in cigarette maker Lorillard Inc. and also owns hotels. ``We are seeing strong demand in our hotel business.''
Economists expect businesses flush with cash to invest in new, more efficient equipment and to expand plants to help meet demand.
Union Pacific Corp., the biggest U.S. railroad, expects volume to increase 3 percent to 4 percent this year, said Chief Executive Officer James Young. Railroads are undertaking some of the largest capacity increases in history, he said in a March 27 interview.
The GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, or profits from current production, rose 14.4 percent to an annual rate of $1.48 trillion. Profits fell 4 percent in the third quarter.
Posted 03/30/2006 09:03:50 am CST by
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