US economy growth less than expected

Washington : The US economy grew at a slightly less brisk pace in the fourth quarter than previously estimated and the momentum is expected to slow this year as a boost from inventories fades.

While the report on Friday — which also showed continued strength in corporate profits — was evidence the economy emerged from recession in the second half of 2009, underlying growth was not robust enough to cut high unemployment.

Separately, worries about jobs kept consumer confidence unchanged this month from February.

"We are still in a lukewarm expansion and underlying growth excluding inventory accumulation really needs to accelerate if we are going to get the jobless rate down in a reasonable period of time," said Zach Pandl, US economist at Nomura Securities International in New York.

Gross domestic product — which measures total goods and services output within US borders — expanded at a 5.6 per cent annual rate, the Commerce Department said in its final report for the fourth quarter, instead of 5.9 per cent as it had previously estimated.

That was below market expectations for a 5.9 per cent rate, but remained the fastest pace since the third quarter of 2003.

Although an alternative measure of growth, gross domestic income, or GDI, increased for the first time since the first quarter of 2008, analysts said it did not alter their views of slow labour market recovery.

GDI measures the economy's performance from the income side. It surged at a 6.2 per cent rate after falling 0.4 per cent in the third quarter.

"It's encouraging because it means companies are well positioned to expand and increase their workforces if they wanted to, but there are lot of obstacles to that, the economic outlook itself and the low capacity utilisation," said Harm Bandholz, an economist at Unicredit Research in New York.

With the unemployment rate at 9.7 per cent, the labour market is the Achilles heel of the economy's recovery from its worst downturn since the 1930s.

That is casting doubts over the durability of the recovery, making businesses reluctant to hire new workers even as their profits continue to grow.

Profits

After-tax corporate profits grew 6.5 per cent in the fourth quarter, slowing from a 12.7 per cent rise in the prior period, but were 22.8 per cent higher compared to the last three months of 2008.

US stocks earlier rose as a standby aid package announced by euro zone leaders eased worries about Greece's debt problems. They ended little changed after the sinking of a South Korean naval ship. The dollar fell against the euro, while US government debt prices rose.

The government's final estimate of fourth-quarter GDP growth was reduced from the prior reading because contributions from business investment, consumer spending and inventories were found to be lower than earlier thought.

Much of the economy's recovery has been driven by government stimulus and businesses being less aggressive in reducing inventories. The growth pace is expected to slow in the coming quarters as the boost from these two sources fades.

"Solid, if lacklustre, growth in consumer spending and robust growth in both capital spending on equipment and exports will help to keep growth in the 2.5 per cent to 3 per cent range in the next few quarters," said Nariman Behravesh, chief economist at IHS Global Insight in Lexington in Massachusetts.

Surveys

The Thomson Reuters/University of Michigan's Surveys of Consumers index was unchanged at 73.6 in March on job worries, but a touch above market expectations for 73.

However, the labor market is slowly improving and payrolls are expected to have increased in March, which would mark only the second time since the recession started in December 2007.

A preliminary Reuters survey forecast the closely watched employment report due next Friday to show employers added 190,000 jobs after cutting 36,000 positions in February, largely driven by hiring for the 2010 census.

Excluding inventories, GDP grew at a rate of 1.7 per cent instead of the 1.9 per cent pace previously estimated.

When businesses increase inventories or slow the rate at which they are liquidating them, manufacturers raise production and this boosts GDP. Business inventories fell $19.7 billion (Dh72.29 billion) in the fourth quarter, slightly more than the $16.9 billion estimated last month.