The U.S. economy grew at a slightly faster rate in the fourth quarter than previously estimated, boosted by stronger consumer spending. Consumers may be providing more lift to the economy in the current January-March period.
The Commerce Department said Friday that the economy grew at a modest 1.4 percent annual rate in the October-December period. That was better than the 1 percent growth rate estimated a month ago but still below the 2 percent annual growth for the July-September quarter.
Most of the strength in the revision for last quarter came from an upward boost to consumer spending, particularly involving recreation. Exports also were not as weak as previously thought.
The estimated growth of the U.S. gross domestic product – the nation’s total output of goods and services – was the government’s third and final look at GDP for the fourth quarter.
Friday’s report also contained a potentially worrisome sign – a weak first estimate of corporate profits. It showed that pretax profits fell 7.8 percent in the fourth quarter after a 1.6 percent drop in the third quarter. Fourth-quarter profits were also down 11.5 percent from a year earlier – the steepest annual drop since a 30.8 percent plunge in the fourth quarter of 2008, in the depths of the financial crisis.
On the other hand, consumer spending, which accounts for 70 percent of economic activity, grew at an annual rate of 2.4 percent in the fourth quarter, faster than the 2 percent growth estimated a month ago. Many economists saw this upgrade as a welcome sign that spending should remain strong, helped by solid employment gains this year.
“The consumer is back in the driver’s seat with their foot down hard on the gas as last year came to a close,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York. “Real economic growth was stronger than we thought late last year, and this makes us more hopeful that the first quarter will be better than expected.”
A slowdown in stockpiling by businesses reduced growth by 0.22 percentage points, slightly more than the 0.14-percentage-point drag previously estimated.
Many economists think that growth as measured by the gross domestic product is accelerating in the current quarter to a 2 percent annual rate. But some analysts have been downgrading their estimates of late, reflecting some weaker-than-expected economic data.
Analysts at forecasting firm Macroeconomic Advisers, for example, on Thursday reduced their forecast of first-quarter GDP growth to a 1.5 percent annual rate, after the release of a weak report on new orders for long-lasting manufactured goods. Those orders dropped 2.8 percent in February.
That decline was seen as a sign that the nation’s manufacturing sector is still struggling with weakness overseas and a strong dollar, which has made American-made products more expensive in foreign markets.
This month, the Federal Reserve left its key policy rate unchanged after having raised it from a record low in December. Fed officials also scaled back their expectations for the number of rate hikes this year from four to two.
The officials said they thought the global economy and financial markets still pose risks even though financial markets have stabilized since the year began. Stocks had nosedived after investors worried about how steep the slowdown would be in China, the world’s second-largest economy.
Analysts have forecast that for 2016 as a whole, the economy will grow around 2 percent. That would be down from 2.4 percent growth for all of 2015, a figure that was not revised in the new report.