WASHINGTON (Reuters) – The U.S. economy likely grew at its slowest pace in nearly two years in the fourth quarter as businesses added less stock to their warehouses and government spending fizzled, setting it up for a difficult start in 2013.
Gross domestic product probably expanded at a 1.1 per cent annual rate, braking sharply from a 3.1 per cent clip in the third quarter, according to a Reuters poll of economists.
That would mark the weakest growth pace since the first quarter of 2011 and it would show the economy entering the new year with little momentum.
However, an anticipated pick-up in consumer spending and a rebound in business investment should give the recovery a fighting chance even as Washington tightens its belt.
“The fact that GDP could come in above 1 per cent is pretty respectable given all the headwinds and the challenges the economy faced in the final three months of the year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester Pennsylvania.
The Commerce Department will release its advance fourth-quarter GDP estimate at 8:30 a.m EST.
The data will be published as officials at the Federal Reserve wrap-up a two-day meeting. Though some of the factors holding back growth were temporary, the report is not expected to give officials at the U.S. central bank any reason to ease up on their ultra-accommodative policy stance.
Economists say a growth pace in excess of 3 per cent would be needed over a sustained period to significantly lower high unemployment. Since the recession ended in mid-2009, the economy has struggled to hold above a 2 per cent growth pace.
The economy was slammed by a monster storm in late October, which caused extensive damage along the East Coast and may have cut around 0.5 percentage point off fourth quarter growth.
The recovery also had to deal with uncertainty over the so-called fiscal cliff of scheduled tax hikes and budget cuts, which hurt confidence even though data suggests that households and businesses largely shrugged off the worries.
SOME BRIGHT SIGNS
Businesses, caught with too much inventory in their warehouses in the third quarter, appear to have slowed their stock building in the final three months of the year.
That slowdown could cut as much as a full percentage point from fourth-quarter GDP growth, economists estimate.
Government spending is expected to have been a drag on growth as well, as defence outlays reverse after a big burst. Government spending is seen contracting at a rate of at least 3 per cent after a gain of 3.9 per cent in the prior three months.
Export weakness is also expected to have weighed on growth. Exports have been hampered by a recession in Europe, a cooling Chinese economy and storm and strike-related port disruptions.
But not all the details in the report will be bleak.
Importantly, consumer and business spending are expected to show some strength.
Consumer spending, which accounts for more than two-thirds of economic activity, is seen accelerating from the prior quarter’s 1.6 per cent growth pace, while business investment is expected to rebound after its first drop in 1-1/2 years.
That should leave a measure of domestic demand, which excludes inventories and trade, quickening a bit from the third quarter’s 1.9 per cent rate.
“Considering all of the uncertainty last quarter associated with the election and the fiscal cliff, a steady pace of underlying demand speaks volumes about the economy’s resilience,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York.
“There is good reason to expect the pace of underlying demand will accelerate,” he said.
The housing market was likely another bright spot. Residential construction is expected to have gained further momentum after notching a 13.5 per cent growth pace in the third quarter.
Homebuilding is seen adding to growth last year for the first time since 2005 and its continued recovery should help ensure the economy remains on a modest growth path.
(Reporting by Lucia Mutikani, editing by Tim Ahmann)
Copyright (2013) Thomson Reuters
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