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Last updated: February 28, 2014 2:48 pm
The US economy grew at a slower pace in the last quarter of 2013 than initially estimated, extending a string of weak data that could raise pressure on the Federal Reserve to reconsider its “tapering” of bond purchases.
Fourth-quarter gross domestic product was revised to annualised rate of 2.4 per cent, down sharply from the previous 3.2 per cent estimate which was made when the Fed started slowing its quantitative easing programme.
The revision was roughly in line with economists’ expectations and mainly caused by lower consumer spending growth, from 3.3 per cent to 2.6 per cent, evidence that Americans were not quite as confident about making purchases during the holiday season as previously thought.
Nevertheless, the 2.6 per cent consumption growth was still the highest quarterly reading of 2013, a sign of a resilient consumer, particularly in the context of a six-day government shutdown and another brush with debt default.
The contribution to growth from net exports and inventory accumulation was revised down but business investment was revised upwards.
But the poor reading on US GDP growth in the fourth quarter comes on the heels of a litany of disappointing economic news over the past six weeks, from weak payroll growth to sluggish retail sales and industrial production.
In testimony before the Senate banking committee on Thursday, Janet Yellen, Fed chairwoman, said it was too early to tell how much of that weakness was due to exceptionally cold weather, and how much was a warning sign of a deeper slowdown.
She vowed that the Fed would try to get a “firmer handle” on the data in the coming weeks and would be “attentive” to any signs of real economic weakness. The latter might cause the Fed to pause the slowing of its asset purchases, though central bank officials have signalled that there would have to be “significant” change in the outlook for them to consider halting the taper, and the bar is high.
Economists were split on the meaning of the downward revision for the outlook for 2014. Some were downbeat. “The downward revision to growth in Q4 should work to temper expectations for a significant pickup in GDP this year,” said economists at RBS in a note. “We never felt that the strength in Q4 would be sustained this year, and in fact, the revisions to GDP show that the strength was exaggerated to begin with,” they added.
Others were not concerned. “This revision was entirely expected and largely traceable to slow retail sales growth during the end of 2013. Accordingly, there is very little new information about the economy in these data,” said Doug Handler, chief US economist at IHS Global Insight. “Our core forecast of accelerating growth in 2014, particularly in the second half of this year, is reaffirmed,” Mr Handler added.
The GDP revision also included an uptick in core personal consumption expenditure inflation – the preferred measure at the Fed – from 1.1 per cent to 1.2 per cent, a little closer to the central bank’s 2 per cent target.
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