The US economy expanded as expected in the fourth quarter while personal income grew at a much faster pace than previously thought, which should help underpin spending this quarter.
Gross domestic product increased at a 3.0 per cent annual rate, the quickest pace since the second quarter of 2010, the commerce department said in its final estimate on Thursday, unrevised from last month’s estimate.
That was in line with economists’ expectations. The economy grew at a 1.8 per cent rate in the third quarter.
However, personal income was $13.162 trillion at a seasonally adjusted annual rate, $3.3 billion more than previously reported. Disposable income was $10.6 billion more than previously thought, likely reflecting the strengthening labour market.
Gross domestic income, which measures output from the income side, increased at a 4.4 per cent rate — the fastest since the first quarter of 2010 — from a 2.6 per cent rise in the third quarter.
The department also said after-tax profits increased at a 1.1 per cent rate, slowing from 2.7 per cent the prior quarter. The slowdown in profits reflects the increase in wage costs as companies step up hiring.
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Rising incomes should help to cushion consumer spending against surging gasoline prices. Spending, which accounts for about 70 per cent of US economic activity, grew at an unrevised 2.1 per cent pace in the fourth quarter.
Jobless claims at lowest since April 2008
The number of Americans seeking unemployment benefits dropped last week to the lowest level in almost four years, adding to evidence of an improving US labour market. Initial jobless claims fell 5,000 in the week ended March 24 to 359,000, the lowest since April 2008, the labour department reported on Thursday in Washington.
The median forecast of economists in a Bloomberg News survey called for 350,000 claims. With the report, the government data also contain revisions dating back to 2007.
Companies are retaining workers and hiring as sales pick up along with confidence in the expansion. The pace of employment has gained momentum in the past three months, helping drive income growth that may ease the strain of higher gasoline prices.
“The labor market is still improving at a modest pace,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “Across almost all sectors, companies have shed as many workers as they possibly can. Now, they’re responding to the modest improvements in demand.”
While the economy grew solidly in the final three months of 2011, momentum has slowed this quarter amid signs of cooling in manufacturing, business spending and a pause in the housing market recovery - even as the labor market strengthens.
Federal Reserve Chairman Ben Bernanke this week said growth needed to accelerate to bring the unemployment rate down further. While he offered no sign that the U.S. central bank would launch a third round of bond purchases or quantitative easing, Bernanke said all options remained on the table.
First-quarter growth is seen around 2 percent, also as the economy loses the boost from restocking by businesses. However, rising gasoline prices are a wild card.
So far there is little sign that consumers have cut back, with auto sales surging in both January and February.
The build-up in business inventories accounted for the bulk of the rise in output in the last quarter. But the final GDP revisions showed a slightly better tone in the overall growth picture.
Business spending was revised up to a 5.2 percent growth rate from 2.8 percent, to account for slightly stronger investment in equipment and software. That offset weaker export growth.
There were also small upward revisions to spending on home building projects. Though home sales stumbled in February, the housing market is slowly recovering and homebuilding is expected to contribute to growth this year for the first time since 2005.
While the rebuilding of inventories added a hefty 1.81 percentage points to GDP in the last quarter, the pace of accumulation was not as fast as previously reported. Business inventories increased $52.2 billion, instead of $54.3 billion.
Excluding inventories, the economy grew at an unrevised 1.1 percent rate. That was a sharp step-down from the prior period's 3.2 percent pace.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)