The U.S. economy grew at a faster pace in the last quarter of 2015 than originally thought, propelled by modest consumer spending, while buisness investment remained constrained by weak profitability.
American gross domestic product advanced at a 1.4 percent annual rate, in this the third and final estimate from the Commerce Department, lower than the 2 percent pace in the third quarter but an improvement on the prior estimate of 1 percent. Analysts had forecast no change. This matches the current GDPNow tracking estimate from the Atlanta Fed, which was reduced to 1.4 percent after Thursday's poor durable goods report.
The economy expanded at a 2.2% average pace in the first three quarters of 2015. Real GDP increased 2.4 percent in 2015 from the annual level in 2014, the same as in 2014.
Corporate profits, also tracked in this report, dropped by the most in 2015 since the end of the recession in 2009. Weakening corporate returns were reflected in yesterday's durable goods report for February which showed capital spending negative in January and February and declining at a faster rate than anticipated by economists.
Pre-tax corporate earning fell 7.8 percent in the fourth quarter, the most since the first three months of 2011, following a 1.6 percent drop in the third quarter. Overall business profits fell 3.1 percent last year, the largest amount since 2008.
An increase in personal consumer spending accounted for the majority of the upward revison to GDP. Its contribution to economic activity rose from 1.38 percent in the second estimate of GDP to 1.66 percent today. Final sales to domestic purchasers, that is without inventory and trade figures, rose to a 1.7 percent rate of increase from the prior estimate of 1.4 percent.
Household spending, the oft quoted 70 percent of the U.S. economy, rose at a 2.4 percent pace in the final measure more than the previous estimate of 2 percent.
Although consumers have been willing to increase purchases, the small and fitful gains of the past several years reflect more the negligible wage increases, averging 2.1 percent annually just slightly ahead of inflation, than the relatively good job creation record of the past two years.
The economy may be creating a steady turnout of new employment, but if wages are not rising in advance of inflation, total consumer purchasing power increases only by the small number of new jobs (relative to the total employment) rather than by a percentage wage increase across the more than 140 millin people in the labor force.
Employers added 242,000 new workers in February and the unemployment rate held at 4.9 percent an eight year low, but the increase in average hourly earnings fell back to 2.2 percent annually from 2.5 percent in January, on par, and little improved over the average of the last seven years. Unemployment claims remain near an all time low.
Chief Market Strategist