By Jeffry Bartash, Market Watch–
WASHINGTON (MarketWatch) — The annual pace of U.S. economic growth in the fourth quarter was marked up slightly to 1%, but that was mainly because of a bigger stockpiling of inventories that could weigh on the economy in early 2016.
The latest snapshot of the economy’s fourth-quarter performance still reflects a slowdown in growth that set in during the waning months of 2015. The government last month initially reported that gross domestic product — the value of everything a nation produces — has expanded at 0.7% rate.
The “bottom line is that fourth-quarter GDP growth was still pretty modest,” said Paul Ashworth, chief U.S. economist at Capital Economics.
The economy has also started out 2016 on a softer note — and the high level of inventories in the fourth quarter probably doesn’t help. Firms might have to cut back on production to get inventories back in line.
The value of inventories, which adds to GDP, rose by $81.7 billion instead of $68.6 billion as initially reported, the Commerce Department said Friday.
The upward revision largely appeared to reflect a technical alteration in how inventories are calculated, but it might also suggest companies got stuck with more unsold goods than they expected. Consumers and businesses both cut back on spending toward the end of the year.
Consumers boosted spending by 2% in the fourth quarter, but that was down from an initial 2.2% estimate and was much weaker compared with the spring and fall.
Businesses also spent sharply less. Investment in equipment sank a revised 6.6% and outlays on structures such as drilling rigs and office space slipped 1.9%.
One good sign: consumer spending in January rose a sharp 0.5%, the government said in a separate report. That may have helped companies reduce excess inventories.
Meanwhile, exports fell a steeper 2.7% in the fourth quarter instead of 2.5%, though trade was less of a drag on GDP because imports actually dropped 0.6%. Originally the government said imports increased 1.1%.
Inflation as measured by the PCE price index rose at a 0.4% annual rate in the fourth quarter, up from an earlier 0.1% estimate.
Looking ahead
The upward revision in fourth-quarter GDP had no effect on the economy’s performance in 2015 overall. The U.S. grew 2.4% for the second year in a row, failing to reach 3% for the 10th straight year.
The outlook for 2016 doesn’t look any better. Economists predict the U.S. will stick to its current rate of growth, held in check by a strong dollar, weak exports and slack business investment.
A strong dollar has made Americans goods more expensive for foreign customers. Demand for “Made in the U.S.” has also suffered because of slower global growth.
The drag they are having on the economy has been partly offset by higher consumer spending and a steadily recovering housing market. Americans boosted spending in 2015 by 3.1%, the most in a decade.
These countervailing trends were clearly evident in the fourth quarter
Investment in new housing, for example, jumped 8% in the final three months of 2015. A surge in hiring and improved personal finances have given more Americans the means to buy a home.
Yet American consumers alone cannot push the economy to new heights. Unless businesses spend and invest more and the global climate improves, the U.S. is unlikely to grow any faster.
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