U.S. GDP growth in the fourth quarter fell more sharply than initial estimates indicated, driven by cuts to business investment including inventories, though corporate profits jumped significantly, according to recent government figures.Â
The Commerce Department’s Bureau of Economic Analysis reported in its third GDP estimate that gross domestic product rose at a downwardly revised 0.5 percent annualized rate. This marks a step down from the prior 0.7 percent growth figure for the quarter, with the advance estimate having shown 1.4 percent.Â
Reuters-polled economists had expected the GDP figure to stay at 0.7 percent without revision. Adjustments stemmed from reductions in business outlays on intellectual products and inventory buildup.Â
Adjusting consumer spending growth
Consumer spending growth, representing over two-thirds of economic activity, was adjusted lower to 1.9 percent from the earlier 2.0 percent reading. The prior year’s government shutdown primarily caused the deceleration from the third quarter’s 4.4 percent expansion. GDP figures for both the third and fourth quarters do not fully capture the economy’s underlying condition.Â
Final sales to private domestic purchasers—stripping out government spending, trade, and inventories—advanced at a 1.8 percent rate in the fourth quarter. Policymakers monitor this domestic demand gauge closely; it had previously been pegged at 1.9 percent, following a 2.9 percent rise in the July-September period.Â
Profits from current production climbed by $246.9 billion in the fourth quarter, up dramatically from $175.6 billion in the third quarter. Viewed through the income lens, economic growth reached 2.6 percent in the fourth quarter, after 3.5 percent in July-September.Â
The combined GDP and GDI average—known as gross domestic output and viewed as a superior activity gauge—expanded at a 1.5 percent rate, down from 4.0 percent in the prior quarter. While first-quarter growth probably accelerated, the U.S.-Israeli war on Iran looms as a risk to the economy.
