* Fourth-quarter GDP growth revised to 3 percent from 2.8
* Consumer, business spending account for revisions
* Inventory accumulation lowered, income growth raised
* Midwest factory activity gauge rises to 10-month high
By Lucia Mutikani
WASHINGTON, Feb 29 The U.S. economy grew
slightly faster than initially thought in the fourth quarter and
a gauge of factory activity in the Midwest hit a 10 month-high
in February, pointing to underlying strength in the economy.
Gross domestic product expanded at a 3 percent annual
rate, the quickest pace since the second quarter of 2010, the
Commerce Department said on Wednesday in its second
The reading, which was up from the 2.8 percent pace the
government reported last month and reflected modest upward
revisions to almost all components of GDP, added to the recent
run of fairly upbeat economic reports.
The tone of the GDP report was further bolstered by upward
revisions to income and savings data, which should help support
consumer spending in the face of rising gasoline prices.
"Growth is still on the right path, but we are not going to
see any acceleration. Income was revised up so it removed one of
the headwinds to growth in the beginning of the year," said
Yelena Shulyatyeva, an economist at BNP Paribas in New York.
A steady stream of fairly upbeat data ranging from
employment to manufacturing has caused analysts to temper
expectations of a sharp pullback in growth this quarter.
First-quarter GDP growth is seen between 2 and 2.5 percent.
In another report, the Institute for Supply
Management-Chicago said its measure of manufacturing in the
Midwest region rose to a 10-month high of 64 in February from
60.2 in January.
A reading above 50 indicates expansion in the regional
economy. Activity was boosted by a jump in new orders to a near
one-year high and a backlog build-up.
The report, which also showed regional factory employment at
its highest since May 1984, was in stark contrast with a sharp
decline in demand for long-lasting manufactured goods in January
reported by the government on Tuesday.
"Durable goods orders are usually weaker in the first month
of the quarter and that is particularly noticeable in January.
Manufacturing is doing well," said Ryan Sweet, a senior
economist at Moody's Analytics in West Chester Pennsylvania.
Economists have raised their forecasts for the Institute for
Supply Management's report on overall manufacturing activity to
be released on Thursday.
The ISM index of national manufacturing is now expected to
be around 55, up from the 54.5 forecast in a Reuters poll.
Stocks on Wall Street initially rose on the data, but
reversed gains to end lower amid disappointment that Federal
Reserve Chairman Ben Bernanke gave no signal for further
But prices of Treasury debt, a traditional safe
haven, fell on the signs of economic improvement. The dollar
rose 0.7 percent against a basket of currencies.
ECONOMY HOLDING UP
Better economic data has reduced expectations that the Fed
will ease monetary policy further by launching a third round of
asset purchases, or quantitative easing, in order to drive down
long-term interest rates and help boost economic activity.
Chairman Bernanke, in semi-annual testimony to Congress
on Wednesday, offered no hints as to whether the U.S.
central bank would undertake more bond purchases, but he said
the labor market was far from normal.
"Continued improvement ... is likely to require stronger
growth in final demand and production," he said.
While data so far this year has been relatively upbeat, some
of the gains reflect unseasonably warm weather. Analysts are
watching gasoline prices, which early last year contributed to a
softening in the economy that nearly pushed it back into
Retail gas prices have jumped 12.6 percent, or 42 cents a
gallon, since the start of the year and averaged $3.78 a gallon
in the week through Monday.
"The economy is heading in the right direction, but it's not
off and running yet. Even though job growth is accelerating,
long-term unemployment is a major problem," said Sweet.
A report from the Fed showed the economy expanded modestly
in January through mid-February as hiring picked up a bit across
Recent employment gains are helping the economy.
The GDP report showed consumer spending - which accounts for
about 70 percent of U.S. economic activity - grew at a 2.1
percent rate in the fourth quarter, revised up from 2 percent.
Real disposable income growth was revised up to a 1.4
percent rate from 0.8 percent. The saving rate was raised to a
much stronger 4.5 percent rate from 3.7 percent.
There were also modest upward revisions to business
investment in capital goods and spending on home building.
Investment in nonresidential structures was modestly weak.
Still, the pace of business spending was the slowest since
the 2007-09 recession ended.
While a rebuilding of inventories added a hefty 1.88
percentage points to GDP in the last quarter, the increase was
revised down to $54.3 billion from $56.0 billion.
"The large boost to GDP growth from stock building in the
fourth quarter is unlikely to be repeated in the first quarter,
but the household accounts provide a much more encouraging
backdrop for consumer spending," said Peter Newland, a senior
economist at Barclays Capital.
Excluding inventories, the economy grew at a 1.1 percent
rate, up from the 0.8 percent rate initially reported, but a
sharp step-down from the third quarter's 3.2 percent pace.
The report also showed exports were not as strong as
previously thought, but imports were not robust, leaving a
smaller trade gap that was less of a drag on growth.
Government spending was weak, hurt by a steep decline in
defense outlays. Inflation pressures toward the end of the year
were slightly elevated, instead of subsiding as the first report
A price index for personal spending rose at a 1.2 percent
rate instead of 0.7 percent. A core measure that strips out food
and energy costs rose at a 1.3 percent rate instead of 1.1
The Fed would prefer to see this measure nearer its 2
percent inflation target.