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Economy posts sluggish growth in fourth quarter

Traders stand outside the New York Stock Exchange prior to the opening bell October 31, 2012. REUTERS/Brendan McDermid
Traders stand outside the New York Stock Exchange prior to the opening bell October 31, 2012. REUTERS/Brendan McDermid

WASHINGTON (Reuters) - The economy expanded at a sluggish pace in the fourth quarter although a big gain in business investment and higher exports of services led the government to push up its previous estimate for growth.

Gross domestic product expanded at a 0.4 percent annual rate, the Commerce Department said on Thursday, just below the 0.5 percent gain forecast by analysts in a Reuters poll.

The growth rate was the slowest since the first quarter of 2011 and far from what is needed to fuel a faster drop in the unemployment rate. It was, however, higher than the government's previous estimate of a 0.1 percent growth rate.

Much of the weakness came from a slowdown in inventory accumulation and a sharp drop in military spending. These factors are expected to reverse in the first quarter.

Consumer spending was more robust by comparison, although it only expanded at a 1.8 percent annual rate. That was a slower pace of growth than the government had previously estimated.

Household spending powers about 70 percent of national output, and this still-lackluster pace of growth suggests underlying momentum in the economy was quite modest as it entered the first quarter, when a series of fiscal austerity measures began.

Thursday's report is the government's third estimate of growth for the final three months of 2012. In the first estimate, the government shocked economists by saying the economy shrank at a 0.1 percent annual rate.

Thursday's report showed the reasons for the meager pace of economic activity were mostly as initially estimated.

Inventories subtracted 1.52 percentage points from the GDP growth rate during the period, a bit less of a drag than in the second growth estimate, which was published on February 28. Defense spending plunged at a 22.1 percent rate, shaving 1.28 points off growth as in the previous estimate.

There were some bright spots, however. The report showed business investment rose at a 13.2 percent rate, a bigger gain than initially estimated. The extra growth was mostly from more construction spending by businesses.

Imports fell 4.2 percent during the period, adding to the overall growth rate because it was a larger drop than in the third quarter. Buying goods from foreigners bleeds money from the economy, subtracting from economic growth.

Exports of services rose more than in prior estimates also providing a boost to GDP.

The report showed that, overall, exports fell less than the government had previously thought. Exports have been hampered by a recession in Europe and storm-related port disruptions.

Excluding the volatile inventories component, GDP rose at an upwardly revised 1.9 percent rate, in line with expectations.

After-tax corporate profits rose at a 3.3 percent annual rate in the quarter, the fastest pace since 2005.

(Reporting by Jason Lange; Editing by Chizu Nomiyama and Theodore d'Afflisio)

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