Featured # Markets | 3 years ago

Fourth-Quarter Growth in the U.S. Modified to 1.0%

The economy of the United States grew at a slower pace in the final quarter of last year, but not at the magnitude previously concluded. Companies were less assertive in their campaigns to minimize their undesirable supply, which in turn creates the possibility to lower production in the first quarter of 2016. The Commerce Department said Friday during its second national gross domestic product estimate that the GDP grew 1.0% annual rate during the fourth quarter of 2015, rather than their previous estimate of 0.7%. The prevailing notion was that fourth-quarter gross domestic product growth would have been modified to the lower level of 0.4%, according to a poll of economists. This thought process was bolstered by the fact that the GDP grew at a 2.0% rate in the third quarter.

Originally estimated at a value of $68.6 billion, businesses truly amassed a stockpile of inventory valued at $81.7 billion. This modification represents how businesses’ inventory accumulation was originally vastly undervalued. With a larger inventory valuation, inventories deduct less from national economic growth. Thus, due mainly to the retail trade and mining, utilities, and construction sectors, inventories did not deduct the original estimate of 0.45% from GDP growth, rather it only reduced economic growth by 0.14%. The larger inventory stockpile may have aided GDP growth last quarter, yet it stands to harm this quarter’s economic growth. With more supply on hand, companies will have less need to re-order their products, which in turn will slow assembly.

While national economic growth estimates are listed as high as 2.5% for the first quarter, alarming global trends are causing economists to lower their expectations. Due to the sluggish global market, a fortifying dollar, and constricting stock market circumstances, GDP growth estimates for this current quarter are falling from their original levels. In addition to inventory and GDP growth revisions, there were slight changes made to consumer spending statistics from the previous quarter. Consumer spending did not rise at the originally reported rate of 2.2%, instead it rose at a rate 2.0%, which is still important due to the fact that consumer spending represents greater than two thirds of all economic activity in the United States. The framework for rising consumer spending continues to be sturdy, as gasoline prices are sitting around $2 a gallon and higher job earnings and home prices are raising domestic prosperity.

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