US Q4 economic growth revised up on inventories

In its second reading of fourth-quarter GDP, the Commerce Department said the economy grew at a 5.9 percent annual rate, rather than the 5.7 percent pace it estimated in January.

It was still the fastest pace since the third quarter of 2003. The economy expanded at a 2.2 percent annual rate in the third quarter.

Analysts had forecast GDP growing at a 5.7 percent rate in the October-December period.

While the economy rebounded strongly in the second half of 2009 from the worst downturn since the 1930s, data so far suggests the rapid rate of acceleration slowed somewhat in the first quarter of 2010.

A sharp brake in the pace at which businesses liquidated inventories combined with increased spending on equipment and software to boost growth in the fourth quarter, offsetting lacklustre consumer spending and residential investment.

Stripping out inventories, the economy expanded at an annual rate of 1.9 percent, rather than the 2.2 percent pace estimated in January, indicating growth was not being driven by demand.

Business inventories fell only $16.9bn in the fourth quarter instead of $33.5bn estimated at the start of the year. They dropped $139.2bn in the July-September period. The change in inventories alone added 3.88 percentage points to GDP in the last quarter.

This was the biggest percentage contribution since the fourth quarter of 1987.

For the whole of 2009, the economy contracted 2.4 percent, the biggest decline since 1946, the department said.

In the final three months of 2009, consumer spending increased at a 1.7 percent rate, rather than the two percent pace reported in January. That was below the 2.8 percent rate in the prior quarter when consumption got a boost from the government’s “cash for clunkers” auto purchase programme.

In the fourth quarter, consumer spending – which normally accounts for about 70 percent of US economic activity – contributed 1.23 percentage points to GDP.

The department confirmed robust spending on equipment and software caused business investment to grow for the first time since second quarter of 2008, despite a drop in spending on commercial real estate.

Business investment rose at a 6.5 percent rate, much faster than the 2.9 percent pace estimated in January. It had dropped 5.9 percent over the prior three-month period.

Spending on new home construction grew at a slower five percent rate in the fourth quarter, instead of 5.7 percent estimated originally. It had grown at an 18.9 percent pace in the third quarter.

Both exports and imports grew much stronger than initially estimated in the fourth quarter, leaving a trade gap that contributed 0.3 percentage point to GDP growth, the data showed.