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WRAPUP 1-U.S. fourth-quarter GDP unrevised; weakness in business spending persists

Thu, 27th Feb 2020 14:19

* Fourth-quarter GDP growth unrevised at 2.1%

* Consumer spending, business investment revised lower

* Core capital goods orders increase 1.1% in January

* Weekly jobless claims rise 8,000 to 219,000

By Lucia Mutikani

WASHINGTON, Feb 27 (Reuters) - The U.S. economy grew
moderately in the fourth quarter, the government confirmed on
Thursday, and is facing a bumpy road in early 2020 amid the
fast-spreading deadly coronavirus that has roiled financial
markets.

Gross domestic product increased at a 2.1% annualized rate,
supported by a smaller import bill, the Commerce Department said
in its second estimate of fourth-quarter GDP. That was unrevised
from last month's advance estimate and matched the growth pace
logged in the July-September quarter.

The economy grew by an unrevised 2.3% in 2019, the slowest
annual growth in three years and missing the Trump
administration's 3% growth target for a second straight year.

Financial markets have been spooked by fears that the
coronavirus, which has killed more than 2,000 people, mostly in
China, and spread to other countries, could undercut the longest
U.S. economic expansion on record, now in its 11th year.

Risky assets such as stocks have been sold off in favor of
safe-haven government bonds. Money markets have boosted their
bets on the prospect of more Federal Reserve interest rate cuts.
The U.S. central bank cut rates three times last year and has
signaled its intention to keep monetary policy on hold at least
through 2020.

Though there is so far no real evidence that the coronavirus
epidemic is impacting the U.S. economy, economists expect the
struggling manufacturing sector to take a hit through supply
chain disruptions and exports. Pain for the services sector
could come via the travel and tourism industry.

The stock market sell-off if it persists could erode
consumer confidence and hurt consumer spending, which is already
slowing. Economists also worry that corporate profits could come
under pressure and lead to layoffs and a slowdown in hiring. The
labor market is the economy's main pillar of support.

President Donald Trump on Wednesday assured Americans the
risk from coronavirus remained "very low," and said public
health officials were preparing to do "whatever we have to," to
deal with the outbreak.

Despite the unrevised reading to last quarter's GDP growth,
which was in line with economists' expectations, consumer
spending slowed more than previously reported. There were also
downgrades to business investment and government spending.

That offset upward revisions to investment in homebuilding
and inventory accumulation.

WEAK DOMESTIC DEMAND

Excluding trade, inventories and government spending, the
economy grew at a 1.3% rate in the fourth quarter, the slowest
in four years. This measure of domestic demand was previously
reported to have risen at a 1.4% pace in the fourth quarter.

U.S. financial markets were little moved by the data.

Business investment fell at a steeper 2.3% rate in the
fourth quarter, instead of the previously reported 1.5% pace. It
was the third straight quarterly decline and the longest such
stretch since 2009. There were downward revisions last quarter
to spending on equipment, mostly light trucks.

Investment in intellectual property products like software
was also downgraded, offseting upgrades to spending on
nonresidential structures such as mining exploration, shafts and
wells. A second report from the Commerce Department on Thursday
showed orders for non-defense capital goods excluding aircraft,
a closely watched proxy for business spending plans, jumped 1.1%
last month, the largest gain since January 2019.

The signs of stabilization in business investment are,
however, likely to be tempered by the coronavirus. Business
investment is also seen being pressured by Boeing's
decision to halt the production of its troubled 737 MAX plane
starting last month.

Goldman Sachs on Sunday cut its first-quarter gross domestic
product growth estimate by two-tenths of a percentage point to a
1.2% annualized rate. Growth estimates for the January-March
quarter were already on the low side because of Boeing's biggest
assembly-line halt in more than 20 years.

Growth in consumer spending, which accounts for more than
two-thirds of U.S. economic activity, slowed to a 1.7% pace in
the fourth quarter, instead of the previously reported 1.8%
rate. A strong rebound is unlikely, especially if the stock
market rout spreads to the labor market. A separate report on
Thursday showed applications for unemployment benefits increased
8,000 to 219,000 last week, though the underlying trend remained
consistent with solid labor market conditions.

The decrease in imports in the fourth quarter, in part
because of U.S. tariffs on Chinese goods, compressed the trade
deficit. Trade added 1.53 percentage points to GDP growth,
rather than the 1.48 percentage points reported last month. That
was the most since the second quarter of 2009.

Inventories rose at a $13.0 billion rate in the fourth
quarter, instead of the $6.5 billion rate reported in January.
Inventory investment sliced 0.98 percentage points from GDP
growth last quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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