US economy shows some muscle

March 28, 2014 - 8:08:30 am

A new home is being built with a for sale sign on a street in Vienna. The National Association of Realtors said its pending home sales index fell 0.8 percent to its lowest level since October 2011.

WASHINGTON: The US economy grew a bit faster than previously estimated in the fourth quarter and new claims for jobless aid dropped to a near four-month low last week, suggesting the economy has plenty of momentum to break out of its winter chill. 

Housing, however, will probably take a while to pull out of its recent slump as contracts to buy previously owned homes fell to their lowest level in almost two-and-a-half years in February. Still, the better economic picture could see the Federal Reserve raising interest rates earlier than markets expect, economists said.

“The economy looks in a better place than it did just 24 hours ago. The outlook is assured, so look for the Fed to normalise its policy sooner rather than later,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.

Gross domestic product expanded at a 2.6 percent annual rate, the Commerce Department said yesterday, 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 expansion was still significantly slower than the 4.1 percent rate logged in the July-September quarter, the composition of growth in the fourth quarter suggested underlying strength in the economy.

Consumer spending, which accounts for more than two thirds of US economic activity, was raised sharply higher and the pace of restocking by businesses was not as robust as previously estimated. 

Business spending on equipment was a bit stronger than previously estimated and the decline in government outlays was a little less pronounced.

“The recovery is finally self-sustaining. Although growth will be slightly weaker in the first quarter, the economy should quickly pick back up again in the second quarter,” said Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh. 

A separate report from the Labour Department showed 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, which gives a better picture of underlying labour market conditions, hit its lowest level since September. The dollar hit a session high against the yen on the data, while US Treasury debt yields edged higher. Stocks on Wall Street were little changed, weighed down by lingering geopolitical uncertainties.

In another report, the National Association of Realtors said its pending home sales index, based on contracts signed last month, fell 0.8 percent to its lowest level since October 2011.

Housing has been hit by cold weather, a tight supply of properties for sales, as well as high mortgage rates. High house prices are also sidelining potential buyers, especially those venturing into the market for the first time.

The revision to fourth-quarter growth suggested the economy had momentum as 2013 ended and should regain strength once the effects of the unusually cold and snowy winter that depressed activity at the beginning of this year start to abate.

Reuters

comments powered by Disqus