U.S. Growth in 4th Quarter Revised Slightly Lower

U.S. Growth in 4th Quarter Revised Slightly Lower
By JAVIER C. HERNANDEZ
Copyright by The New York Times
Published: March 26, 2010
http://www.nytimes.com/2010/03/27/business/economy/27econ.html?hpw


Economic growth in the last quarter of 2009 was slightly less robust than previously thought, the government said Friday. But corporate profit in the quarter rose significantly, providing hope that businesses might begin hiring again.

Gross domestic product, the total value of goods and services in the economy, expanded at an annual rate of 5.6 percent in the fourth quarter, the Commerce Department said. Growth was previously forecast at 5.9 percent from October through December.

Despite the revision, the economy grew at the fastest pace in more than six years in the quarter. But economists believe that pace will probably not continue, given the country’s high rate of unemployment and struggling real estate markets.

“This doesn’t take much away from the strong pace in the fourth quarter,” said Julia Coronado, senior United States economist at BNP Paribas. “Looking at the underlying numbers, it tells us the recovery is on track, but it’s going to be slow.”

After-tax corporate profit, considered a harbinger of business spending, rose 6.5 percent in the quarter according to the government report, signaling that businesses might soon begin hiring in greater numbers.

Spending by businesses in the quarter was lower than expected, rising 5.3 percent rather than the 6.5 percent originally forecast. Much of the difference came as the commercial real estate sector worsened, with spending falling 18 percent rather than the original estimate of 13.9 percent. The sector is grappling with high vacancy rates, excess supply, and little interest by investors in financing large projects.

After cutting costs significantly in the last year, businesses have begun to tentatively expand. Friday’s report recorded better-than-expected spending on equipment and software, which rose 19 percent in the quarter.

Consumer spending was weaker than originally estimated. Americans, facing mounds of debt and dreary prospects for employment, have been reluctant to spend freely. Spending rose 1.6 percent in the quarter, compared with the 1.7 percent originally forecast.

A barometer of consumer sentiment released Friday by the University of Michigan held steady in March; analysts had expected it to decline. Views on the current health of the economy brightened, but consumers were slightly more pessimistic about the outlook.

The roaring rate of growth in the fourth quarter was largely the result of a slowdown in how quickly businesses slashed stockpiles. Inventories remained well stocked in the fourth quarter, contributing more than 3 percent to gross domestic product.

Economists do not expect the restocking of inventories to contribute as much to future growth. Forecasts call for the economy to grow at an annual rate of 2 to 3 percent in the first quarter of 2010 — far short of the levels needed to significantly reduce the jobless rate, which stands at 9.7 percent.

The government’s first estimate of first-quarter growth will be released at the end of April.