U.S. 4Q Economic Growth Rate Revised Lower

U.S. economic growth braked more sharply than initially thought in the fourth quarter amid a slow pace of stock accumulation by businesses and a wider trade deficit, but the underlying fundamentals remained solid.

Gross domestic product expanded at a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated last month, the Commerce Department said on Friday. The economy grew at a 5 percent rate in the third quarter.

The fourth-quarter revision was generally in line with expectations.

With consumer spending accelerating at its quickest pace since the first quarter of 2006 and sturdy gains in other measures of domestic demand, the slowdown in growth is likely to be temporary.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised down by one-tenth of a percentage point to a 4.2 percent pace in the fourth quarter, still the fastest since the first quarter of 2006.

A tightening labor market and lower gasoline prices are likely to keep supporting domestic demand and help the economy navigate a turbulent global economy.

Business spending on equipment was revised to show it rising at a 0.9 percent rate instead of the previously reported 1.9 percent contraction.

A first-quarter acceleration is now in the cards, with data on Thursday showing a rebound in business spending intentions in January after four straight months of declines.

With both business and consumer spending expanding in the fourth quarter, growth in final sales to domestic purchasers was revised to a 3.2 percent pace from the previous 2.8 percent rate.

Businesses accumulated $88.4 billion worth of inventory in the fourth quarter, far less than the $113.1 billion the government had estimated last month.

That resulted in the GDP growth contribution from inventories being revised down to one-tenth of a percentage point from 0.8 percentage point previously.

The slower pace of inventory accumulation, however, will be a boost to first-quarter GDP growth.

Strong domestic demand sucked in more imports than previously reported, resulting in a trade deficit, which subtracted 1.15 percentage points from GDP growth, revised from the previously reported 1.02 percentage point drag.

Residential construction spending was revised down, while government spending was not as weak in the fourth quarter as previously reported. (Reporting by Lucia Mutikani; Editing by Paul Simao)