The US economy grew at a healthier pace than expected late last year, the government said yesterday in a report that hinted at potential underlying strength once Iraqi war fears lift and that may rekindle debate about the need for fresh tax stimulus.
The Commerce Department revised up its estimate of fourth-quarter gross domestic product performance to show a 1.4 per cent annual rate of advance, twice the 0.7 per cent gain it published a month ago and well ahead of Wall Street analysts' forecasts for a one per cent pace of fourth-quarter expansion.
Spending by businesses to rebuild inventories during the fourth quarter was the strongest in two years, and consumers were less reluctant to spend than the government previously reported.
The fourth-quarter gain in GDP - which measures the value of all goods and services produced within US borders - was a slowdown from the third quarter's four per cent pace, but it still showed the economy growing at a steady if unspectacular clip.
"Overall it's a pretty solid number," said economist Lara Rhame of Brown Brothers Harriman in New York.
The Commerce Department said businesses increased inventories at a $24.7-billion annual rate in the fourth quarter last year - the strongest spending since a $59.9-billion addition in the fourth quarter of 2000 and a huge upward revision from the $3.3-billion gain estimated a month ago.
The department offered no explanation for the unusually sharp revision in inventory-building but the report showed a much higher value for imported goods than previously estimated, implying a late surge in stocks of foreign-made goods.
Business investment in new equipment and software surged at a 6.6 per cent annual rate in the fourth quarter.
That was sharply ahead of a previous estimate of a five per cent rise and marked the third straight quarter that such investment has grown.
The department revised up its estimate of consumer spending to show a 1.5 per cent rate of increase in the fourth quarter instead of an anemic one per cent.
Consumer spending accounts for two-thirds of national economic activity, so the change bolstered the impression of stronger underlying activity than previously thought.