4th-quarter U.S. GDP expansion cut to 2.4%

The U.S. economy grew at a slower pace in the fourth quarter than previously estimated, giving the expansion less momentum heading into 2014.

Gross domestic product grew at a 2.4 percent annualized rate from October through December, compared with the 3.2 percent gain issued in January, according to revised figures Friday from the Commerce Department.

Smaller gains in consumer spending, inventories and exports weighed on an economy already slowed by the 16-day partial shutdown of federal agencies in October and weaker government spending. Less fiscal restraint this year and further progress in the labor market probably will boost the nation’s gross domestic product, analysts said. Unusually harsh weather has curbed growth so far this year.

“You should see some pent-up activity show up in the second quarter of the year,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. For 2014, “it’s a less head-winds story rather than fundamental improvement in the internals of the economy.”

Jennifer Lee, senior economist at BMO Capital Markets, said that while she expects bad weather to limit this quarter’s growth to a tepid annual rate of around 1.7 percent, she also expects to see a solid rebound for the rest of the year.

“Due to Mother Nature, [the first quarter] is not going to be anything worth writing home about,” Lee wrote in a research note. “The rebound … and all of that pent-up demand won’t show up until the second quarter.”

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York, said the revised GDP is below the 3 percent level many believe will provide “escape velocity” from slow growth since the recession ended.

“The economy had it and now has lost it,” he said.

“The first quarter is unlikely be anything to write home about although the colder-than-seasonal weather will generate some growth from consumers turning up the thermostats in their homes,” Rupkey said.

Economists’ projections for fourth-quarter GDP, the value of all goods and services produced, ranged from 1.8 percent to 3 percent. Friday’s estimate is the second of three for the quarter, with the final reading this month when more data are available.

The economy grew 4.1 percent in the third quarter. For all of 2013, the economy expanded 1.9 percent after a 2.8 percent increase in the prior year.

Household purchases rose at a 2.6 percent pace, down from an originally reported 3.3 percent and less than the 2.9 percent median forecast of economists surveyed by Bloomberg. The increase was still the biggest since the first quarter of 2012. Spending climbed at a 2 percent pace in the third quarter.

Friday’s GDP report also reflected smaller gains from inventories. Stockpiles, which might be moderating because of weaker-than-expected consumer demand, contributed 0.14 percentage point to growth compared with a prior estimate of 0.42 point.

Business investment was one of the few areas of the economy that looked better in the fourth quarter than previously estimated. Spending on new equipment climbed at a 10.6 percent annualized rate, up from a prior 6.9 percent gain and the best performance since the third quarter of 2011. Purchases of intellectual property, including computer software, rose at an 8 percent rate, the biggest advance in six years.

Government spending fell at a 5.6 percent pace from the previous three months, subtracting about 1 percentage point from overall growth. Spending by federal agencies decreased at a 12.8 percent rate. For all of 2013, federal government spending declined 5.2 percent, the most since 1971.

Friday’s report also included revisions to third-quarter personal income. Wages and salaries increased by $45.2 billion, little changed from the previously reported gain of $46.1 billion. They rose about $69.7 billion in the fourth quarter.

The data also showed that while price pressures remained muted, they were less subdued than previously estimated. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.3 percent annualized pace compared with a 1.1 percent rise in the prior estimate. The gauge climbed at a 1.4 percent pace in the third quarter.

Unusually harsh weather and a setback in labor-market gains restrained retail sales in January, signaling the economy was off to a slower start in 2014. Sales fell 0.4 percent after a revised 0.1 percent drop in December that was previously reported as an increase, Commerce Department data showed in February.

The sales decline has companies such as Camden, N.J.-based Campbell Soup Co. hopeful that higher temperatures will recharge demand.

“We are in the midst of a turbulent period - retailers are wrestling with challenged consumers who remain under pressure,” Chief Executive Officer Denise Morrison said during a Feb. 14 earnings call.

“We believe the weakness that Campbell and other food companies experienced in January was partially related to the extreme weather conditions, which dealt a blow to the U.S. economy,” Morrison said. “We expect to be competing in a more typical environment over the remainder of the year.” Information for this article was contributed by Michelle Jamrisko and Chris Middleton of Bloomberg News; by Martin Crutsinger of The Associated Press; and by Jim Puzzanghera of the Los Angeles Times.