U.S. Households Seen Driving GDP Growth in 4th Quarter

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By Lucia Mutikani

WASHINGTON -- Robust household spending and rising exports likely kept the U.S. economy on solid ground in the fourth quarter, but stagnant wages could chip away some of the momentum in early 2014.

Gross domestic product probably grew at a 3.2 percent annual rate, according to a Reuters poll of economists.

While that would be a slowdown from the third-quarter's brisk 4.1 percent pace, it would be a far stronger performance than earlier anticipated, and welcome news in light of the drag from October's partial government shutdown and a likely much smaller contribution to growth from a restocking by businesses.

"It looks like the economy was firing on a lot of cylinders in the fourth quarter," said John Ryding, chief economist at RDQ Economics in New York.

Earlier in the quarter many economists were anticipating a growth pace below 2 percent given that an inventory surge accounted for much of the increase in the July-September period.

"We are more than 4½ years into the recovery. Its death has been called a thousand times, it hasn't happened. It comes to a point where people go back to more normal behavior," Ryding said.

If economists' fourth-quarter estimates are correct, growth over the second half of the year would come in at a 3.7 percent pace, up sharply from 1.8 percent in the first six months and well above the 2.2 percent average since the recovery started in mid-2009.

Consumer spending is expected to be the main driver of fourth-quarter growth, but other segments of the economy such as trade and business investment are also seen lending a hand.

The Commerce Department will release its advance fourth-quarter GDP report at 8:30 a.m. Eastern time Thursday,
a day after the Federal Reserve said "growth in economic activity picked up in recent quarters."

On Wednesday, the Fed announced another reduction to its monthly bond purchases and appeared to shrug off a surprise sharp slowdown in job growth in December.

Consumer spending is forecast rising at a pace as fast as 4 percent, which would be the strongest in three years. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, advanced at a 2 percent pace in the third quarter.

Robust Final Demand

The sturdy increase in final demand should put the economy on a stronger growth path this year. However, a lack of wage growth could take some edge off consumer spending early in the year.

A feared inventory correction, which did not materialize in the fourth quarter, is now likely to show up in the first three months of the year and weigh on growth, economists said.

In addition, business investment is expected to moderate, given a surprise tumble in orders for capital goods excluding defense and aircraft in December.

Despite that drop, business spending on equipment likely accelerated in the fourth quarter after rising at only a 0.2 percent pace in the prior three months.

"We are not completely out of the woods. We would really like to see stronger wage growth and corporate investment before declaring full 'escape velocity,' " said Thomas Costerg, a U.S. economist at Standard Chartered Bank in New York.

Even so, a lessening of the fiscal austerity that gripped Washington last year should keep the economy on a firmer growth path. Growth for the whole of this year is forecast at 2.9 percent, up from last year's estimated 1.9 percent.

Wage growth has been stagnant as the economy deals with slack in the labor market. Sluggish wages likely kept inflation pressures benign in the fourth quarter. A price index in the GDP report is expected to have risen at a 0.7 percent rate, decelerating from the third-quarter's 1.9 percent pace.

A core measure that strips out food and energy costs likely rose at a 1.1 percent rate after increasing at a 1.4 percent pace in the July-September period.

The economy in the last quarter also likely got a boost from exports, thanks to firmer global growth. That, together with declining petroleum imports likely narrowed the trade deficit.

Some slowing is expected in the growth of business spending on nonresidential structures in the fourth quarter. A run-up in mortgage rates, which held back home sales and renovations, could see residential investment falling for the first time since the third quarter of 2010.

Government spending probably contracted, reflecting a 16-day partial shutdown of the federal government in October.


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Marti Moore

where are my portfolios?

February 02 2014 at 12:44 PM Report abuse rate up rate down Reply
Valerie

I just love these pie-in-the-sky forecast articles loaded up with opinions of economists. Lots of qualifying words, like "could", "would", "should", "anticipated", "likely", and "expected".

Most economists could not find their own rear end, using both hands and the Hubble telescope. However, they never tire of spewing out their future predictions.

Of course, the economy looked better in the fourth quarter. That's all the crazy Christmas spending pushing up the numbers.

Millions of Americans are unemployed. Yet, still the economists think these cash-strapped people are going to "drive the economy" up. The only driving the unemployed will be doing is driving to the food banks and the unemployment offices.

January 30 2014 at 8:43 AM Report abuse rate up rate down Reply
cshae89546

Politicians can stand in front of their media admirer propagandist cameras and talk all they want about an American "improving" economy. Their faces can smile as they parade the horribly wounded hero who patriotically did his duty and gave far more than his fair share while they spent his patriotism on an undeclared war they never intended to win. That will NOT change the reality of most working Americans seeing significant percentage decreases in their incomes over the last couple years as the price of their health insurance its deductible has increased as they were forced to other plans and other doctors and to shop for their families other essentials in an economy where retail prices continue to increase. Smart Americans know what political party is responsible and which one they will NOT vote for in 2014 or 2016.

January 30 2014 at 7:45 AM Report abuse -1 rate up rate down Reply
Tom Harrell

Doesn't this reinforce the Notion that the way to get out of our Economic SLUMP is by building a Stronger Middle Class CONSUMER base ? ?------------------------So it makes sense to keep taxing the CONSUMERS (whose wages have mostly gone DOWN) and giving the Big tax Breaks to the 1%ers who don't Buy anything or invest in the Future of this Nation ? ? ------------This is "TRICKLE DOWN" ! ! !--------------Trickling down our leg as the 1%ers are peeing down our Backsides.

January 30 2014 at 7:41 AM Report abuse rate up rate down Reply
1 reply to Tom Harrell's comment
rjmjlm711

Since Obama has been president, medium household income has gone down 3.800.00

January 30 2014 at 8:12 AM Report abuse rate up rate down Reply
Craig

That's just what this country needs people spending money on more material garbage that they really don't need. Maybe another smartphone that has one more button than the one before, yea right. But hey, when you run out of your money the government will give you theirs in the form of welfare check.

January 30 2014 at 7:20 AM Report abuse +1 rate up rate down Reply
1 reply to Craig's comment
Tom Harrell

What should we Buy "CRAIG " ? ? ? ?--------------IMMATERIAL Garbage ? --------STUPID !

January 30 2014 at 7:47 AM Report abuse rate up rate down Reply
alfredschrader

Also on here is a story that we all have about 20% neanderthall DNA. I think I found something else.
Until about 12,000 years ago the only sounds humans could make were grunts and hisses.
Then the very first human made a musical sound or note. I believe this first occurred on the Salisbury plain in England. As more of these amazing people emerged there, the populace built a ring of stones as a place where other neanderthals could come and marvel at the singing humans.

January 30 2014 at 7:12 AM Report abuse -1 rate up rate down Reply