US economy beats estimate with 2.6pc growth

PUBLISHED : Friday, 28 March, 2014, 1:40am
UPDATED : Friday, 28 March, 2014, 1:40am

The United States economy grew more rapidly in the fourth quarter than estimated as consumer spending climbed by the most in three years, showing the expansion had momentum heading into this year's harsh winter.

Gross domestic product grew at a 2.6 per cent annualised rate from October to December, more than the 2.4 per cent gain reported last month, figures from the Commerce Department showed yesterday. The median forecast of economists surveyed called for a 2.7 per cent increase.

Robust consumer spending on services, particularly health care, helped accelerate the expansion, a sign that this year's slowdown is partly due to heavy snowfall and freezing temperatures. Retailers such as Macy's are waiting for the weather to improve to get a clearer picture of the economy.

"The economy is shaking off the negative impacts from the weather," said Sam Bullard, a senior economist at Wells Fargo Securities. "We're beginning to see signs that growth is going to gain some traction and strengthen and accelerate as the year progresses."

For all of last year, the economy expanded 1.9 per cent after a 2.8 per cent increase the previous year.

The economy is shaking off the negative impacts from the weather

Another report yesterday showed fewer Americans than forecast filed applications for unemployment insurance payments last week, indicating the job market was improving.

The number of jobless claims dropped to 311,000 in the week to March 22, the fewest since late November, from 321,000 the prior period. The median forecast of economists surveyed projected 323,000.

Consumer purchases, which account for almost 70 per cent of the economy, advanced at 3.3 per cent in the fourth quarter, the most since the last three months of 2010 and surpassing the 2.6 per cent gain previously reported. It added 2.2 percentage points to growth from October to December and followed a 2 per cent advance in the prior three-month period.

Household outlays on services climbed at a 3.5 per cent annualised rate, the biggest gain since the second quarter of 2005. The revision from the previous estimate of 2.2 per cent reflected gains in health care, financial services and electricity.

Sales at retailers rose in February for the first time in three months, the Commerce Department reported earlier this month, a sign that consumer spending might be regaining traction. Purchases increased at department stores, sporting goods retailers and internet merchants.

The job market is showing signs of thawing. Payrolls rose more than projected last month, with employers adding 175,000 workers, the Labour Department reported earlier this month. Unemployment climbed to 6.7 per cent from a five-year low of 6.6 per cent the previous month.

The economy added 190,000 jobs in March, said a preliminary median forecast in a survey ahead of an April 4 report from the Labour Department.

Abnormally cold weather probably slowed fourth-quarter growth by 0.4 percentage point and is expected to shave a full percentage point from first-quarter GDP, according to an analysis from Macroeconomic Advisers in St Louis.