Consumer spending lifts fourth-quarter US growth to 2.6 percent

The U.S. economic grew a bit faster than previously estimated in the fourth quarter of 2013, displaying underlying strength that could bolster views that the slowdown in activity early in the year would be temporary. 

In a second piece of positive economic news Thursday, initial claims for unemployment benefits fell 10,000 last week to a seasonally adjusted 311,000 -  the lowest since late November and a hopeful sign indicating that hiring could pick up.

In terms of the overall economy, gross domestic product expanded at a 2.6 percent annual rate, the Commerce Department said on Thursday, up from the 2.4 percent pace it reported last month. The revision reflected a stronger pace of consumer spending than previously estimated. 

The economy expanded at a 4.1 percent pace in the July-September quarter. The composition of growth in the fourth quarter suggested underlying strength in the economy, with consumer spending raised sharply higher and the pace of restocking by businesses not 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. 

The revisions 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. 

In terms of unemployment, the Labor Department said Thursday that the four-week average of unemployment applications, considered a less volatile measure because it irons out week to week volatility, fell 9,500 to 317,750. That is the fourth straight drop and the lowest level in six months, bringing pplications in line with pre-recession levels.

The sustained decline in unempoyment applications suggests companies are confident enough about future growth to keep their staffs. Greater business confidence can also lead to more hiring.

About 3.3 million people received benefits in the week ending March 8, the latest data available. That was about 43,000 fewer than the previous week.

Economic growth is expected to have slowed to a pace of around 2 percent in the first quarter. 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 more brisk 3.3 percent rate, reflecting strong growth in services. That reflected increased spending on health care and utilities. 

Consumer spending accounts for more than two-thirds of U.S. economic activity and was previously reported to have increased at a 2.6 percent rate. 

It was the fastest pace 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 is positive for short-term economic growth. 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. 

Wire services