The Commerce Department reduced its fourth quarter GDP estimate in part due to and slowdown in homebuying and home sales.
The U.S. economy didn’t grow nearly as strongly at the end of last year as we had thought, the Commerce Department reported Friday. The department revised fourth-quarter GDP growth downward, from its first estimate of a 3.2 percent annual rate of growth to 2.4 percent. The new estimate represents a sharp deceleration from last years’ third-quarter growth, which had been 4.1 percent, the strongest performance in nearly two years.
The government makes adjustments to GDP estimates as it receives more complete data on economic activity. The downward revision last quarter was largely because consumer spending was not as strong as the department had initially estimated.
However, consumer spending remained strong, growing at a rate of 2.6 percent, its strongest growth since the first quarter of 2012.
The slowdown in GDP from the third to fourth quarters was due to a slowdown in business investment in inventories, cuts in government spending, and a pullback in spending on residential fixed investment, a category that includes homebuying and remodeling.
Some economists have attributed recent soft economic data to an unusually cold winter. Federal Reserve Chair Janet Yellen told the Senate Banking Committee on Thursday that recent soft data in areas like retail sales, housing and employment may be due to unusual weather.
“Let me add as an aside that since my appearance before the House Committee [on Feb. 11], a number of data releases have pointed to softer spending than many analysts have expected. Part of that softness may reflect adverse weather conditions, but at this point it’s difficult to discern exactly how much,” she said.
However, she also added that it would take a “significant change in the outlook” to cause the Fed to reconsider its pace of tapering its monthly asset purchases in its third round of quantitative easing, or QE3.
That significant change may not be on the way.
"Nothing has changed in our basic economic forecast – the U.S. economy is still trending higher and we expect GDP growth to strengthen throughout the year," writes TIAA-CREF’s Chief Economist Tim Hopper in a Friday commentary. He says winter slowdowns are "partially because of cold weather and partially due to lower inventory spending – which was all but inevitable given the staggering size of the inventory build during October and November."
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