WASHINGTON: The US economy grew more slowly late last year than previously thought, but there was enough vigour that the Federal Reserve will likely continue reducing its stimulus programme, analysts said.
The Commerce Department on Friday cut its estimate of gross domestic product growth in the final quarter to an annual rate of 2.4 percent, from an initial reading of 3.2 percent.
Analysts had expected a somewhat smaller GDP revision to a 2.6 percent pace in the final quarter, which began with the negative effects of the government shutdown in October and ended with disappointing holiday retail sales in December amid bad weather.
Most of the downward fourth-quarter revision of 0.8 percentage point came from smaller than first estimated growth in consumer spending, the main engine of US economic activity.
Personal consumption expenditures (PCE) were revised lower to 2.6 percent from the prior estimate of 3.3 percent. The weaker spending growth picture was not surprising, after economic data and retailers’ reports had shown consumers were holding their wallets tight in the face of high unemployment and Washington budget uncertainty.
Other factors were downward revisions to private inventory investment, exports and state and local government spending.
The world’s largest economy grew at a robust rate of 4.1 percent in the third quarter but significantly lost momentum as it entered 2014. Since then, a batch of economic data has been disappointing in January and February as severe winter weather gripped much of the country.
“Growth is slowing a bit from the inventory-juiced pace of late last year, but the main culprit is winter weather, which is weighing heavily on activity,” said Scott Hoyt of Moody’s Analytics.
Inflation slowed in the fourth quarter and remained well below the Federal Reserve’s 2.0 percent target. The PCE price index was up 1.0 percent, compared with a 1.9 percent pace in the third quarter. The core PCE, excluding food and energy prices, rose 1.3 percent.
The new chair of the Federal Reserve, Janet Yellen, yesterday suggested that the US central bank could shift its tapering policy if recent weaker data represented a fundamental change in growth.
Yellen, in semi-annual Fed testimony to Congress, told the Senate Banking Committee that Fed policymakers believe severe weather was behind some of the disappointing numbers of the past two months on job creation, industrial production and consumption.
She said the Fed would try to “get a firmer handle” on exactly how much of the weaker data can be explained by weather or if any is due to a softer outlook. AFP
