US 4th quarter growth faster than thought: 0.4%

The US economy grew more strongly than initially thought in the fourth quarter last year but was still moving at a sluggish 0.4 percent annual pace, the Department of Commerce said Thursday. That was an improvement over the previous estimate of almost no growth -- just 0.1 percent. But overall it was not much change for a quarter in which growth was slowed in part by the massive hurricane at the end of October which shut down much of the economy in the heavily populated northeast for more than a week. The new data showed exports and business investment in structures and equipment both higher than previously expected. But the revised data showed personal spending was not as strong as earlier estimates. However, the department added, growth was still sluggish and "the revision to GDP has not changed the general picture of the economy." The 0.4 percent fourth quarter pace came in after a solid third quarter expansion rate of 3.4 percent. Overall in 2012, gross economic product expanded 2.2 percent, a modest pace that left policy-makers still frustrated at the slow growth in jobs and the substantial government budget deficit. Economists believe the economy picked up in the first quarter of this year ending Sunday, with estimates close to the average for 2012 despite the onset of higher taxes from January 1 and the federal budget-crunching "sequester" spending cuts that were launched from March 1. BMO Capital Markets economist Jennifer Lee called the revised fourth quarter rate "still disappointing" but said the investment bank was sticking by its forecast of growth holding 2.2 percent for 2013. Nigel Gault, the chief US economist at IHS Global Insight, said the revision did not change the general picture of the economy in the second half of last year: that the surge in defense spending and inventory growth in the third quarter went into reverse in the fourth. For the current quarter, he said, growth will be more like the third quarter of 2012 as businesses are expanding their inventories again, "it seems on optimism about growth prospects." While defense spending has slowed in advance of and since the sequester cuts, consumer spending has also accelerated and housing investment continues to rise, Gault said. Overall, he said, the first quarter growth rate will probably hit 3 percent. "But it will slow again in the middle of the year as the sequester bites." The revision, combined with improved data on retails sales in Germany, supported fresh gains on US stock markets, with the S&P 500 rising 0.3 percent to surge past its all-time closing high set in October 2007.