GDP Revised Up on Stronger Exports
Fri Feb 25, 12:12 PM ET
WASHINGTON (Reuters) - U.S. economic momentum at the end of 2004 was significantly stronger than previously thought, according to a government report on Friday revising up fourth-quarter output to reflect stronger exports and investment.
The Commerce Department said gross domestic product, the gauge of total goods and services production within U.S. borders, grew at a revised 3.8 percent annual rate in the final three months of last year instead of 3.1 percent reported a month ago.
That was slightly stronger than the 3.7 percent rate that Wall Street economists had forecast and only a small decline from the third quarter's 4 percent pace.
Nearly half the revision stemmed from a stronger trade performance, reflecting more robust exports than previously thought. Statistics Canada corrected a $1.4 billion error in underestimating U.S. exports to Canada during November, and later data also showed the U.S. trade deficit for December narrowed more than had been anticipated.
BEST YEAR SINCE 1999
Despite the fourth-quarter revision, there was no change in the government's calculation that GDP grew 4.4 percent in 2004, ahead of a 3 percent increase in 2003 and the strongest for any year since 1999, when it expanded 4.5 percent.
A report from the National Association of Realtors, a trade group, on Friday said sales of single-family homes eased 0.1 percent in January but still were running at healthy levels.
Sales were at a seasonally adjusted annual rate of 6.8 million last month, the seventh best rate on record as relatively low mortgage rates apparently continued to support the nation's housing markets.
The GDP report indicated inflation was perking up in the fourth quarter. A price index favored by Federal Reserve Chairman Alan Greenspan -- personal spending minus food and energy costs -- increased at a 1.6 percent annual rate that was close to twice the 0.9 percent gain recorded in the third quarter.
Businesses kept up a brisk pace of new investment. Nonresidential investment climbed at a revised 14 percent rate instead of 10.3 percent reported a month ago and was ahead of the third quarter's 13 percent.
Spending on new equipment and computer software increased 18 percent after growing 17.5 percent in the third quarter.
But growth in consumer spending was revised down modestly to 4.2 percent from a previously reported 4.6 percent rise in the fourth quarter and was less vigorous than the third quarter's 5.1 percent gain.
Most analysts believe the economy has enough strength to keep expanding at around a 4 percent annual rate in the first half of 2005. The Federal Reserve has been gradually ratcheting interest rates up, aiming to bring them to more normal levels as expansion from the downturn in 2001 is extended.
Merrill Lynch economists Sheryl King and David Rosenberg said in a commentary afterward they expected a strong first quarter but some gradual slowing in GDP growth as stiffer credit costs begin to bite later in the year.
TO SLOW LATER?
"We are now monitoring first quarter GDP at about 4.3 percent," the Merrill Lynch economists said. "Still, in our view growth will decelerate over the balance of 2005 as the full impact of tightening monetary policy is felt."
The Fed's trendsetting federal funds rate is at 2.5 percent after six successive rises since last June, still relatively low by historical standards. Recent minutes from Fed policy meetings indicate some concern that prices are on the rise and that is expected to keep rates moving higher.
Economist David Resler of Nomura Securities International in New York said the only surprise was the downward revision in consumer spending but he discounted its impact.
"More important are the developments for the first quarter -- with durable goods being strong yesterday we could be looking at first quarter GDP of about 4 percent," Resler predicted. The Commerce Department said on Thursday that new orders for costly durable goods excluding transportation were up by 0.8 percent in January.
Market reaction to the GDP report was muted. Bond prices were modestly higher by mid-day while the dollar, which had initially gained against the euro, was flat.
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