U.S. Economy Grew Less Than Forecast Last Quarter (Update2)
U.S. Economy Grew Less Than Forecast Last Quarter (Update2)
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By Courtney Schlisserman
Feb. 28 (Bloomberg) — The U.S. economy grew less than forecast in the fourth quarter, relying on exports as consumer spending slowed and the slump in homebuilding deepened.
Gross domestic product rose at a 0.6 percent annualized rate, unchanged from the initial estimate last month, after a 4.9 percent gain in the third quarter, the Commerce Department said today in Washington. The median estimate in a Bloomberg News survey of economists was for a 0.8 percent increase.
Excluding exports and imports, domestic spending contracted, a change from the first estimate, the department said. Combined with figures today showing claims for unemployment insurance jumped last week, the report reinforced traders’ expectations for the Federal Reserve to cut interest rates again next month.
“We have absolutely no momentum going into the first quarter,” said Josh Shapiro, chief U.S. economist in New York at Maria Fiorini Ramirez Inc. “Things are looking pretty grim for the economy. If we’re not in a recession already, we’re very close.”
Fed Chairman Ben S. Bernanke yesterday signaled he’s ready to lower interest rates again to sustain the expansion. Traders see a 100 percent chance of a half-point reduction to 2.5 percent by the end of the next meeting on March 18. Odds of a three-quarter point cut rose to 36 percent, from 10 percent.
Jobless Claims
The Labor Department said initial claims for unemployment insurance climbed 19,000 last week to 373,000, higher than forecast.
The dollar, which had risen as much as 0.3 percent earlier today, erased its gains after the reports and reached a record low against the euro. It traded at $1.5127 at 8:39 a.m. in New York, after touching $1.5147 earlier.
The median GDP estimate was based on 74 economists surveyed. Projections ranged from gains of 0.5 percent to 1.3 percent.
An improvement in trade prevented the economy from contracting last quarter. The gap narrowed to an annual pace of $506.8 billion, adding 0.9 percentage point to GDP.
Excluding the improvement in trade, the economy would have shrunk at a 0.3 percent annual pace, the first decline since the last recession in 2001.
“One could argue that the domestic recession began” last quarter, Neal Soss, chief economist at Credit Suisse, said in a Feb. 21 note to clients. “But there would be no debating that the rest of the world kept U.S. GDP growth above water at the end of last year.”
Consumer Spending
Consumer spending, which accounts for more than two-thirds of the economy, rose at a 1.9 percent annual rate in the fourth quarter, down from the 2 percent increase estimated last month, according to today’s report.
Declining sentiment is likely to continue to restrain spending in coming months. Purchases may grow at a 1 percent pace this quarter, according the median estimate in a Bloomberg News survey taken from Jan. 30 to Feb. 7. The survey also projected a 0.5 percent pace of expansion from January through March.
Consumer confidence fell this month to the lowest level since the start of the Iraq war as the job market deteriorated, according to a report this week from the Conference Board, a New York-based research group. Americans’ expectations for the next six months dropped to the lowest level since January 1991.
Adding to concerns about spending, revisions for the third and fourth quarters also showed smaller gains in incomes, according to today’s report. Personal income increased at a 4.1 percent annual pace from October through December, compared with an initial projection of 4.5 percent.
Job Market
Income growth may slow further in coming months as the labor market softens. The U.S. lost jobs for the first time in four years in January and weekly initial jobless for jobless benefits have risen.
Fourth-quarter estimates for commercial construction, business investment on new equipment, government spending and inventories were also revised down.
Residential construction decreased at a 25 percent pace, more than previously estimated and the most since 1981. Declines are likely to continue through much of 2008.
Lowe’s Cos., the world’s second-largest home-improvement retailer, said this week that fourth-quarter profit fell and several “challenging” quarters remain as the worst housing slump in more than 25 years deepened.
`Tough’ Market
“It will still be a tough housing market through the balance of 2008,” Lowe’s Chief Executive Officer Robert Niblock said in a Feb. 25 interview. “It’ll probably be into 2009 before you’re seeing a recovery.”
Fed Chairman Bernanke, in testimony to Congress yesterday, referred to “downside” risks for the economy four times and noted that data since the last Fed meeting in January pointed to “sluggish” growth.
The central bank “will act in a timely manner as needed to support growth and to provide adequate insurance against downside risks,” Bernanke said. Policy makers are scheduled to next vote on interest rates on March 18.
The Fed and the administration are trying to head off a recession. President George W. Bush, on Feb. 13, signed a $168 billion stimulus package, including tax rebates to more than 130 million households.
Today’s report is the second of three estimates released by the Commerce Department. The data will be revised again next month as more information becomes available.
To contact the report on this story: Courtney Schlisserman in Washington Cschlisserma@bloomberg.net
Last Updated: February 28, 2008 09:29 EST