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Fourth-Quarter GDP Growth Slashed

After delivering a promising first report at the end of January, the government on Friday scaled back its estimate for fourth-quarter economic growth.

In the second of three planned reports, the Bureau of Economic Analysis (BEA) put gross domestic product (GDP) growth at an annual rate of 2.4 percent in Q4 2013, down from its initial estimate of 3.2 percent in January and its final report of 4.1 percent in the third-quarter.

Full-year growth is estimated at 1.9 percent compared to 2.8 percent in 2012.

According to BEA, the latest downward revision stemmed from a smaller increase in consumer spending than what was previously reported. First estimated at 3.3 percent, spending growth was scaled back to 2.6 percent.

Still, the agency noted personal consumption expenditures contributed heavily to fourth-quarter growth. Also reflected in the latest data are positive contributions from exports, nonresidential fixed investment, and private inventory investment.

Putting a drag on GDP were declines in residential fixed investment and federal government spending—down 12.8 percent, a lasting effect of October’s shutdown. Imports, which count as a subtraction in GDP, also increased.

Paying close attention to the latest report will be Federal Reserve Chair Janet Yellen, who in a Senate Banking Committee hearing Thursday was questioned on how the recent economic slowdown will affect the Fed’s plans to taper asset purchases.

Her response was noncommittal: “Part of that softness may reflect adverse weather conditions, but at this point it’s difficult to discern exactly how much.”

Nevertheless, Yellen and the rest of the Federal Open Market Committee will have to reach an answer on that question ahead of its March meeting, which will fall before the government’s final estimate of fourth-quarter economic expansion.

The committee voted in its last two meetings to curb its monthly purchases of Treasury bonds and mortgage-backed securities. Further cuts (or reverses) will be based on how the economy continues to perform.

GDP won’t be the only factor the committee will have to weigh in its March decision. Also figuring in will be recent employment reports, which have been painted a discouraging picture, weakness in existing-home sales, and a decline in new homebuilding.

On the other hand, indicators released this week indicate a possible comeback from the current slump: New home sales surpassed expectations in January, and pending sales have at least refrained from dropping any further.


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