U.S. Quarterly GDP Revisions Show Weaker Underlying Demand

(Bloomberg) -- Underlying demand in the U.S. economy was slower than initially reported at the end of last year, putting growth on a weaker footing ahead of risks from the coronavirus in 2020.

Upwardly revised contributions from trade and inventories kept gross domestic product expanding at a solid 2.1% annualized rate in the fourth quarter, matching estimates for no revision of the initially reported rate, Commerce Department data showed Thursday.

But consumer spending, which makes up about two-thirds of the economy, was revised down to a 1.7% increase from 1.8%, also matching forecasts. Nonresidential fixed investment was revised lower to a 2.3% drop, representing the third straight decrease and matching the biggest decline since 2015.

The report suggests the record-long U.S. expansion is more vulnerable to weakening than previously thought, and it may remain below President Donald Trump’s target of 3% growth as he seeks re-election. Global stocks on Thursday extended this week’s rout and Treasury yields declined to record lows as the coronavirus spreads and investors fret about its impact on world commerce.

Earlier this month, economists had forecast that U.S. growth would slow to 1.5% in the first quarter, amid weaker gains in government spending and only a slight increase in private investment. The record-long expansion is reliant on consumers continuing to open their wallets, particularly as businesses already whipsawed by the U.S.-China trade war start to contend with the coronavirus.

While most U.S. data have yet to reflect an impact from the virus, some indicators point to a potential hit to GDP: An IHS Markit output gauge for February fell to the lowest since 2013, led by concern at factories and service providers about lower new orders and demand, and severed supply chains.

Brighter Data

Another data set from the Commerce Department on Thursday was brighter. Orders for commercial equipment excluding aircraft -- a proxy for business investment -- rose 1.1% in January after an upwardly revised 0.5% decrease. Even so, the coronavirus will test demand as well as supply chains.

A key measure of underlying demand -- final sales to domestic purchasers -- rose an annualized 1.5% in the fourth quarter, revised from an initially reported 1.6% and the weakest in a year.

Net exports contributed an upwardly revised 1.53 percentage points to fourth-quarter GDP growth, while inventories dragged down the headline figure by 0.98 point, less than initially reported.

A separate report from the Labor Department Thursday showed filings for unemployment benefits rose for a third week, though they remain low by historical standards. Jobless claims increased to 219,000 in the week ended Feb. 22, above economist forecasts. The four-week average, a less-volatile measure, edged up to 209,750.

The claims figures tend to be more volatile around holidays. Last week included the Presidents Day holiday.

The fourth-quarter GDP figures will be revised for a third and final time in March as additional data are compiled. GDP for the January-to-March period will be released in April.

--With assistance from Kristy Scheuble.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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