US economy barely expands in Q4

Another report on Thursday showed a drop in new claims for unemployment benefits last week, adding to a string of data that suggests the economy improved early this year.

Gross domestic product expanded at a 0.1-percent annual rate, the Commerce Department said, missing the 0.5-percent gain forecast by analysts in a Reuters poll.

The growth rate was the slowest since the first quarter of 2011 and far from what is needed to fuel a faster drop in the unemployment rate.

Still, much of the weakness came from a slowdown in inventory accumulation and a sharp drop in military spending. These factors are expected to reverse in the first quarter.

“The breakdown remains consistent with more positive future growth,” TD Securities said in a note to clients.

Consumer spending was more robust by comparison, although it only expanded at a 2.1-percent annual rate.

Because household spending powers about 70 percent of national output, this still-lackluster pace of growth suggests underlying momentum in the economy was quite modest as it entered the first quarter, when significant fiscal tightening began.

However, data on retail sales and from the housing market has suggested a tax hike enacted in January did not deal a big blow to households. Incomes have grown for U.S. families who have also made inroads in reducing their debt burdens.

Most economists think economic growth will pick up substantially by the end of the year although a wave of federal spending cuts due to begin on Friday are also expected to dampen economic growth in the first half of the year.

“The fact that we only eked into positive growth in the fourth quarter will do little to instill optimism in the pace of the recovery,” said Omer Esiner, an analyst at Commonwealth Foreign Exchange.

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