U.S. economic growth sped up to 2.8 percent in the fourth quarter, the Commerce Department said Friday, lower than predicted as consumer spending did not rise as much as expected.
A buildup of business inventories, especially in the auto industry, underpinned much of the expansion, the data showed, while sharp cuts in government spending, especially for defense, held back a stronger surge.
Forecasts on average for the government’s first estimate for the quarter were for a pickup to a 3.2 percent growth pace after the third quarter’s tepid 1.8 percent expansion.
But authorities at federal and local level slashed spending and personal consumption did not pick up the slack as hoped.
Personal consumption during the normally buoyant holiday shopping period grew only 2.0 percent from the previous quarter, far slower than the 3.6 percent pace of a year earlier. Spending on services was virtually flat.
Private investment in inventories, which is frequently volatile from quarter to quarter, anchored the growth pickup.
“This is less impressive than it looks; growth supported by $56 billion inventory rebound, contributing 1.9 percentage points” of the 2.8 percent expansion pace, said Ian Shepherdson of High Frequency Economics.
Shepherdson said that some of the disappointment might be traced to a lower level of fuels consumption due to the uncommonly warm weather across much of the country during the period.
“Muddling through is the best term that can be applied to the current economic environment, even though the risks of a downturn have been reduced,” Steven Ricchiuto of Mizuho Securities said.
“By the same token, the data shows that there is no real risk of an upside surprise either.”
But analysts also noted that the first estimates for quarterly growth can often be considerably revised as more data comes in.
“With nominal retail sales up 7.9 percent at an annual rate in the fourth quarter, we are not buying that nominal spending growth was as weak as suggested by this report,” said RDQ Economics.