Saturday 25 October 2014

US cuts growth forecast as bad weather hits sales

Published 01/03/2014 | 02:30

Fed chief Janet Yellen testifies before the Senate Banking Housing and Urban Affairs Committee on Capitol Hill in Washington
Fed chief Janet Yellen testifies before the Senate Banking Housing and Urban Affairs Committee on Capitol Hill in Washington

The US government slashed its estimate for fourth-quarter growth as consumer spending and exports were less robust than initially thought, suggesting some loss of momentum heading into 2014.

Gross domestic product expanded at a 2.4pc annual rate, the Commerce Department said yesterday.

That was down sharply from the 3.2pc pace reported last month and the 4.1pc logged in the third quarter.

Economists polled by Reuters had expected growth would be cut to a 2.5pc pace. It is not unusual for the government to make sharp revisions to GDP numbers, as it does not have complete data when it makes its initial estimates.

The revision left GDP just above the economy's potential growth trend, which analysts put somewhere between a 2pc and 2.3pc pace. Even with the revision, the second-half growth pace was a stellar 3.3pc and a jump from 1.8pc in the first six months of the year.

Consumer spending accounted for a large chunk of the revision after retail sales in November and December came in weaker than assumed.

Consumer spending was cut to a 2.6pc rate, still the fastest pace since the first quarter of 2012. It had previously been reported to have grown at 3.3pc.

Consumer spending, which accounts for more than two-thirds of US economic activity, contributed 1.73 percentage points to GDP growth, down from the previously reported 2.26 percentage points. As a result, final domestic demand was lowered one-fifth of a percentage point to a 1.2pc rate.

The loss of momentum appears to have spilled over into in the first quarter of 2014, with an unusually cold winter weighing on retail sales, home building and sales, hiring and industrial production.

The Federal Reserve, which has been cutting back on the amount of money it injects into the economy through monthly bond purchases, views the recent soft patch as temporary.

Fed boss Janet Yellen told lawmakers that the cold weather had played a role in the weakening data. She said, however, that it would take a "significant change" to the economy's prospects for the Fed to suspend its plans to wind down its bond buying.

Despite the first quarter's weak start, economists remain optimistic that growth this year will be the strongest since the recession ended almost five years ago. (Reuters)

Irish Independent

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