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Falling petrol prices in the US helped boost household spending. Photograph: Saul Loeb/AFP/Getty

US economic slowdown not as sharp as feared

WT24 Desk

US economic growth slowed in the fourth quarter, but not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from businesses trying to cut stock levels, The Guardian reports.  Gross domestic product increased at a 1.4% annual rate instead of the previously reported 1% pace, the Commerce Department said on Friday in its third GDP estimate.

GDP growth was initially estimated to have risen just 0.7%. The economy grew at a rate of 2% in the third quarter and expanded 2.4% for all of 2015. Economists polled by Reuters had expected that fourth-quarter GDP growth would be unrevised at a 1% rate.

The upward revision reflected a stronger pace of consumer spending than previously estimated. Consumer spending, which accounts for more than two thirds of US economic activity, rose by 2.4% and not the 2% reported last month as consumption of services rose more than expected.

The fairly solid pace of consumer spending underscores the economy’s underlying strength and should further allay fears of a recession, which triggered a massive stock market sell-off early this year.

Spending is being supported by a tightening labour market, which is steadily lifting wages, and rising house prices. Petrol prices of about $2 a gallon (37p a litre) are also helping to underpin household spending. A moderately growing economy, combined with a strong jobs market and firming inflation, may lead the Federal Reserve to gradually raise interest rates this year.

The dollar rose against a basket of currencies after the report.  There was some bad news in the GDP report, with corporate profits falling for a second straight quarter as a strong dollar and cheap oil undercut multinational company earnings. Profits after tax with inventory valuation and capital consumption adjustments declined at an annual rate of 8.4%, the biggest drop since the first quarter of 2014, after dropping at a 1.7% pace in the third quarter.

Profits from current production fell $159.6bn (£113bn) after decreasing by $33bn in the third quarter. For all of 2015, profits dropped 5.1% – the largest decline since 2008 – after slipping 0.6% in 2014.

Part of the drop in profits in the fourth quarter was due to a $20.8bn transfer payment related to the BP oil spill in the Gulf of Mexico in 2010, which was the largest-ever US offshore oil spill.  Profits from the rest of the world decreased $6.5bn in the final three months of 2015 after sliding $23.1bn in the third quarter.

Manufacturing profits declined $139.2bn during the last quarter after decreasing by $4.1bn in the July-September period. Profits in the petroleum and coal products sector tumbled $124.3bn after rising $7bn in the third quarter. The dollar gained 10.5% last year against the currencies of the US’s main trading partners, squeezing the profits of multinationals such as Procter & Gamble and Colgate-Palmolive.

A plunge in crude oil prices of more than 60%from highs above $100 a barrel in June 2014 has also hurt the profits of oilfield service firms such as Schlumberger and Halliburton . But with the dollar’s appreciation slowing since the start of the year and the oil price slide easing, corporate profits are poised to rise, helping to underpin job growth.

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