WASHINGTON -- U.S. economic growth was a bit faster than previously estimated in the fourth quarter, displaying underlying strength that could bolster views that the slowdown in activity early in the year would be temporary.
The economic picture was also brightened by other data Thursday showing new applications for unemployment benefits falling last week to their lowest level in nearly four months.
Gross domestic product expanded at a 2.6 percent annual rate, the Commerce Department said, up from the 2.4 percent pace it reported last month.
The revision, which was broadly in line with economists' expectations, reflected a stronger pace of consumer spending than previously estimated.
Although the revised pace of expansions was still significantly slower than the 4.1 percent rate logged in the July-September quarter, %VIRTUAL-article-sponsoredlinks%the composition of growth in the fourth quarter suggested underlying strength in the economy.
Consumer spending, which accounts for more than two thirds of U.S. economic activity, was raised sharply higher and the pace of restocking by businesses wasn't as robust as previously estimated.
In addition, business spending on equipment was a bit stronger than previously estimated and the decline in government outlays was a little less pronounced.
In a separate report, the Labor Department said initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 311,000, the lowest level since November.
Economists had expected first-time applications for jobless benefits to rise to 325,000 in the week ended March 22. The four-week average, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, fell to its lowest level since September.
U.S. Treasury debt prices fell on the data, with the yield on the benchmark 10-year note touching a session high. U.S. stock index futures were trading lower.
Growth Revision Shows Underlying Strength
The revision to fourth-quarter growth suggested the economy had momentum as 2013 ended and should regain strength once the effects of unseasonably cold weather that dampened activity at the beginning of this year start to abate.
Growth in the first quarter is expected to have slowed to a pace of around 2 percent.
Output has also been dampened by the expiration of long-term unemployment benefits, cuts to food stamps and businesses placing fewer orders with manufacturers as they work through a pile of unsold goods in their warehouses.
Consumer spending grew at a brisk 3.3 percent rate, reflecting strong growth in services. That reflected increased spending on health care and utilities. Spending on long-lasting manufactured goods was also revised higher.
Consumer spending was previously reported to have increased at a 2.6 percent rate. The pace in the fourth quarter was the quickest in three years and contributed more than two percentage points to GDP growth.
Inventories, previously reported to have risen by $117.4 billion in the fourth quarter, were revised down to $111.7 billion. The downward revision, which is positive for near-term economic growth, resulted in inventories not contributing to growth in the quarter.
With fewer stocks on their shelves or in their warehouses, businesses now are more likely to need to place new orders or otherwise ramp up production to meet demand.
Business spending on equipment was revised up, but outlays on non-residential structures were lowered. Spending on home building and government outlays was not as weak as previously estimated.
9 Numbers That'll Tell You How the Economy's Really Doing
Q4 Growth Raised, Jobless Claims Near 4-Month Low
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.