The US economy grew more slowly late last year than previously thought, but there was enough vigor that the Federal Reserve will likely continue reducing its stimulus program, analysts said.
The Commerce Department on Friday cut its estimate of gross domestic product growth in the final quarter to an annual rate of 2.4 percent, from an initial reading of 3.2 percent.
Analysts had expected a somewhat smaller GDP revision to a 2.6 percent pace in the final quarter, which began with the negative effects of the government shutdown in October and ended with disappointing holiday retail sales in December amid bad weather.
Most of the downward fourth-quarter revision of 0.8 percentage point came from smaller than first estimated growth in consumer spending, the main engine of US economic activity.
Personal consumption expenditures (PCE) were revised lower to 2.6 percent from the prior estimate of 3.3 percent. The weaker spending growth picture was not surprising, after economic data and retailers’ reports had shown consumers were holding their wallets tight in the face of high unemployment and Washington budget uncertainty.
Other factors were downward revisions to private inventory investment, exports and state and local government spending.
The world’s largest economy grew at a robust rate of 4.1 percent in the third quarter but significantly lost momentum as it entered 2014. Since then, a batch of economic data has been disappointing in January and February as severe winter weather gripped much of the country.
“Growth is slowing a bit from the inventory-juiced pace of late last year, but the main culprit is winter weather, which is weighing heavily on activity,” said Scott Hoyt of Moody’s Analytics.
“Nothing fundamental has changed in the past few months to suggest that growth will remain sluggish for long.”
Inflation slowed in the fourth quarter and remained well below the Federal Reserve’s 2.0 percent target.
The PCE price index was up 1.0 percent, compared with a 1.9 percent pace in the third quarter. The core PCE, excluding food and energy prices, rose 1.3 percent.
“Inflation remains low enough to encourage the Federal Reserve to maintain loose monetary policy,” Hoyt said.
The US stock markets shrugged off the GDP report, with the broad-market S&P 500 index pushing higher, up 0.6 percent in morning trade, after setting a record high close on Thursday.
“We did not see any significant market reaction to this morning’s announced downward revision,” said Fred Dickson of DA Davidson & Co. “We were encouraged to see investment spending grew at a 7.0 percent annualized rate last quarter suggesting business confidence finally building some momentum that led to organic business structure expansion.”
On Thursday, the new chair of the Federal Reserve, Janet Yellen, suggested the US central bank could shift its tapering policy if recent weaker data represented a fundamental change in growth.
Yellen, in semi-annual Fed testimony to Congress, told the Senate Banking Committee that Fed policymakers believe severe weather was behind some of the disappointing numbers of the past two months on job creation, industrial production and consumption.
She said the Fed would try to “get a firmer handle” on exactly how much of the weaker data can be explained by weather or if any is due to a softer outlook.
The GDP report appeared to give little reason for the Fed to change direction in reducing its massive monetary stimulus,said Harm Bandholz of UniCredit.
The Fed is expected to cut another $10 billion from its asset-purchase program, now at $65 billion a month, at the next policy meeting of the Federal Open Market Committee in mid-March.
The data “should not have altered the fundamental economic outlook of any FOMC member,” Bandholz said.
Despite the lowered fourth-quarter number, the US economy still grew a solid 3.25 percent in the second half of 2013.
For all of 2013, GDP increased by 1.9 percent, down from a 2.8 percent rise in 2012.