WASHINGTON U.S. fourth-quarter growth is likely to be revised higher after services industry data on Wednesday suggested a much stronger pace of consumer spending than the government had previously assumed, according to economists.
The government last month slashed its gross domestic product estimate for the October-December quarter to a 2.4 percent annual pace from a previously reported 3.2 percent rate.
JPMorgan and forecasting firm Macroeconomic Advisers said the quarterly services survey, from which the government's estimates for services consumption is derived, showed a much more robust pace of consumer spending in the fourth quarter than the government's estimated 2.6 percent rate.
"We now believe real consumption increased 3.4 percent," said Silver in a research note. "We are raising our tracking estimate of fourth quarter real GDP growth to 3.0 percent."
Macroeconomic Advisers raised its tracking estimate of fourth-quarter GDP growth by five-tenths of a percentage point to 2.9 percent.
"Key components of the quarterly services survey were above the government's assumption, with the largest positive surprise at non-profit hospitals," said Ben Herzon, a senior economist at Macroeconomic Advisers in St. Louis.
The economy grew at a 4.1 percent rate in the third quarter.
It is not unusual for the government to make big revisions to GDP numbers as it does not have complete data when it makes its first and second estimates. The quarterly services survey has caused revisions to GDP growth over the last several years.
Should the government raise fourth-quarter growth, that would suggest underlying strength in the economy at the end of 2013 and bolster the argument that a slowdown in growth at the start of this year was weather-driven and would be temporary.
"Improved momentum from an upward revision to fourth-quarter services consumption suggests faster growth of services consumption in the first quarter," said Herzon. "As a result, we raised our tracking forecast of first-quarter GDP growth by two-tenths to 1.6 percent."
The government will publish its third GDP growth estimate for the fourth quarter on March 27.
(Reporting by Lucia Mutikani; Editing by Cynthia Osterman)