* Fourth-quarter GDP growth seen cut to a 2.5 percent rate
* Trade, inventories and consumer spending to blame
By Lucia Mutikani
WASHINGTON, Feb 28 The U.S. government is set to
slash its estimate of fourth-quarter growth as exports and
restocking by businesses were less robust than previously
thought, leaving the economy on a more familiar path of modest
Gross domestic product growth will probably be lowered to a
2.5 percent annual rate, according to a Reuters poll of
economists. That would be down sharply from the 3.2 percent pace
reported last month and the 4.1 percent logged in the third
"The revision to the GDP number will better reflect the
underlying economic trend because the increases in inventories
and exports that massively lifted growth in the second half of
the year were simply not sustainable," said Harm Bandholz, chief
U.S. economist at UniCredit Research in New York.
The Commerce Department will release its fresh estimate of
fourth-quarter GDP at 8:30 a.m. (1330 GMT) on Friday.
It is not unusual for the government to make sharp revisions
to GDP numbers as it does not have complete data when it makes
its initial estimates. In fact, the figures on Friday will be
subject to revisions next month as more information is received.
If economists' forecasts are correct, Friday's revision will
leave GDP just above the economy's potential growth trend, which
analysts put somewhere between a 2 percent and 2.3 percent pace.
Trade is expected to account for a large chunk of the
revision. A report earlier this month showed exports fell in
December, leading to a bigger trade deficit in the fourth
quarter than the government had assumed.
Initial estimates had trade adding 1.33 percentage points to
GDP growth in the fourth quarter. Economists expect trade's
contribution will be cut down to about 1.0 percentage point.
"This is still a sizable contribution to GDP growth and the
largest since late 2010," said Ryan Sweet, a senior economist at
Moody's Analytics in West Chester, Pennsylvania.
INVENTORIES GIVE LESS OF A BOOST
Inventories, previously reported to have risen by $127.2
billion in the fourth quarter, are likely to be revised down.
The reported increase in the stocks of unsold goods in the
fourth quarter was the largest in nearly 16 years and followed a
gain of $115.7 billion in the third quarter.
But economists expect the contribution to growth from
inventories, which the government put at 0.42 percentage point a
month ago, could be revised to just about two-tenths of a
Downward revisions are also expected to consumer spending
after data showed weak retail sales in November and December.
Consumer spending had been estimated expanding at a 3.3 percent
rate in the fourth quarter, the fastest in three years.
That could be lowered to a pace of about 3 percent. Consumer
spending accounts for more than two-thirds of U.S. economic
activity. As a result, final domestic demand is likely to be
revised weaker than the 1.4 percent rate previously reported.
The loss of momentum appears to have spilled over into in
the first quarter, with an unusually cold winter weighing on
retail sales, home building and sales, hiring and industrial
The Federal Reserve, which has been cutting back on the
amount of money it is injecting into the economy through monthly
bond purchases, views the recent soft patch as temporary.
Fed Chair Janet Yellen told lawmakers on Thursday that
severe weather had played a role in the weakening of the data.
She said, however, that it would take a "significant change" to
the economy's prospects for the Fed to put plans to wind down
its bond buying on hold.
Despite the first quarter's weak start, economists remain
optimistic that growth this year will be the strongest since the
recession ended almost five years ago.
"We may have the headline GDP number revised down, but I
would not interpret that as a weakening in overall economic
conditions. We just have some headwinds," said Adolfo Laurenti,
deputy chief economist at Mesirow Financial in Chicago.
"I remain fairly optimistic about the outlook for 2014."
Government spending is likely to be revised downward, but
the impact will probably be offset by upward revisions to
investment in residential construction, nonresidential
structures and business spending on equipment.