Feb. 29, 2012 at 8:42 AM ET
The U.S. economy expanded at a faster pace than first estimated in the fourth quarter of last year, perhaps allaying worries of a slowdown in the start of the new year.
The Commerce Department reported Wednesday that the U.S. economy grew at a 3.0 percent pace at the end of 2011, up from its previous estimate of 2.8 percent and higher than economists had expected. It was the fastest pace since the second quarter of 2010 and a much quicker growth rate than the 1.8 percent set in the third quarter.
While the build-up in business inventories still accounted for much of rise in output in the last quarter, the revisions to GDP unveiled an improved tone for the first-quarter growth outlook.
Businesses were not as aggressive in their restocking efforts, which should help to calm fears of a sharper slowdown in output this quarter.
In addition, consumer spending - which accounts for about 70 percent of U.S. economic activity - was a touch firmer than initially thought. Consumer spending rose at a 2.1 percent rate instead of 2 percent.
Even spending on home building was firmer than previously estimated and investment on nonresidential structures was modestly weak.
So far data ranging from employment to manufacturing have shown underlying strength in the economy, reducing the need for the Federal Reserve to ease monetary policy further by launching a third round of asset purchases or quantitative easing.
But surging gasoline prices, which have risen 12.6 percent or 42 cents since the start of the year and averaged $3.78 a gallon in the week through Monday, are clouding the outlook.
High gasoline prices helped to almost snuff out growth early last year. However, economists believe the impact on households this time could be mitigated somewhat by weak costs for natural gas and a strengthening labor market.
While the rebuilding of inventories added a hefty 1.88 percentage points to GDP in the last quarter, the pace of accumulation was not as fast as previously reported. Business inventories increased $54.3 billion, instead of $56.0 billion.
This suggests scope for more stock accumulation this quarter, but not at the same magnitude as the final three months of last year.
Excluding inventories, the economy grew at a 1.1 percent rate, rather than 0.8 percent. That was still a sharp step-down from the prior period's 3.2 percent pace.
Although business overall business spending was revised up, investment in equipment and software was lowered to a 4.8 percent growth rate from 5.2 percent.
Export growth estimates were also lowered, but weaker imports led to a smaller trade gap.
Reuters contributed to this report.