Fourth Quarter GDP Increases By More Than Previously Estimated

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U.S. economic activity in the fourth quarter expanded by more than previously expected, according to a report released by the Commerce Department on Friday, with the upward revision partly due to a smaller than previously expected drop in inventories.

The report showed that gross domestic product increased at an annual rate of 5.9 percent in the fourth quarter compared to the advance estimate of 5.7 percent growth. Economists had expected the pace of GDP growth to be unrevised.

With the upward revision, the pace of GDP growth showed an even more significant acceleration from the 2.2 percent growth seen in the third quarter and marks the fastest pace of growth since the third quarter of 2003.

The Commerce Department said that the bigger than previously expected increase primarily reflected upward revisions to private inventory investment, exports, and non-residential fixed investment.

However, the positive contributions were partly offset by an upward revision to imports and downward revisions to consumer spending and state and local government spending.

A smaller than previously expected drop in inventories played a big role in the upward revision, with private business inventories falling by $16.9 billion compared to the previously reported $33.5 billion decrease.

The revised drop in inventories marks a substantial slowdown from the $139.2 billion decrease reported for the third quarter.

Paul Ashworth, Senior U.S. Economist at Capital Economics said, "Inventories will continue to provide a strong boost to GDP growth in the first half of this year, as stocks start to grow rather than just shrink at a slower pace."

"But that boost will fade quickly in the second half," he added. "Once inventories are back at normal levels, that's it."

The report also showed a downward revision to pace of consumer spending growth, which was revised to 1.7 percent from the previously reported 2.0 percent growth. This marks a notable slowdown from the 2.8 percent growth seen in the third quarter.

On the inflation front, the Commerce Department said its reading on core consumer prices, which exclude food and energy costs, rose at an annual rate of 1.6 percent in the fourth quarter, an upward revision from the 1.4 percent growth reported previously.

U.S. economic activity in the fourth quarter expanded by more than previously expected, according to a report released by the Commerce Department on Friday, with the upward revision partly due to a smaller than previously expected drop in inventories. The report showed that gross domestic product increased at an annual rate of 5.9 percent in the fourth quarter compared to the advance estimate of 5.7 percent growth. Economists had expected the pace of GDP growth to be unrevised. (Market News Provided by RTTNews)