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2/26/2016 10:09:00 AM Write a Letter to the Editor Write a letter to the Editor

Economy Expands at Faster Pace Than Expected in Fourth Quarter

Patrick T. Fallon/Bloomberg News

The U.S. economy unexpectedly expanded at a faster pace in the fourth quarter than estimated, reflecting a higher value of business inventories.

Gross domestic product, the value of all goods and services produced, grew at a 1% annualized rate compared with an estimate of 0.7%, Commerce Department figures showed Feb. 26. The median forecast in a Bloomberg News survey called for a 0.4% gain. Consumer spending was revised lower.

Although the economy slowed in the fourth quarter from 2% in the previous three months, growth is projected to re-accelerate this year as consumers tap into the benefits of a strengthening job market and savings on gasoline to boost spending. With companies making less headway in adjusting stockpiles, one risk for the economy is further weakness in manufacturing and business investment.

“This inventory correction keeps surprising us — it keeps dragging on,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, who is the top forecaster of GDP over the past two years according to data compiled by Bloomberg News. “If the inventory drag continues into the first quarter, the first quarter could be a little bit weaker because you get that spillover. The fundamentals are still pretty solid, but there clearly are some short-term wobbles. ”

Economists’ estimates in the Bloomberg survey ranged from annualized growth rates of 0.1% to 0.9%. The GDP estimate is the second of three for the quarter, with the other release scheduled for next month when more information can be incorporated. The revision shows GDP expanded 2.4% in 2015.

The changes to fourth-quarter growth largely reflected how unsold goods are valued. In inflation-adjusted terms, there was more inventory accumulation than previously estimated as underlying price data were revised up.

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By Victoria Stilwell
Bloomberg News

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