The Commerce Department said Friday that GDP advanced at a 1.0% seasonally adjusted annual rate in the fourth quarter, up from last month’s estimate of 0.7% growth.
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USA stock index futures extended gains after the data, while prices of Treasuries fell.
The so-called core PCE price index rose 1.7% for the 12 months ended January, the largest rise since July 2014.
January economic data posted Friday by the Commerce Department was positive on a number of fronts: consumer spending rose at the fastest pace in eight months as incomes continue to post gains, and inflation is starting to firm up. The Fed raised its benchmark overnight interest rate in December for the first time in almost a decade. The gain from a year earlier remained below the Fed’s 2% inflation target for the 45th consecutive month, but annual inflation has firmed from a month earlier, when it was 0.7% and from January 2015, when it was 0.2%. Much of the increase was due to a 0.5% rise in personal income, the best gain since June.
On the inflation front, the Commerce Department said its personal consumption expenditures price index inched up by 0.1% in January after edging down by 0.1% in December.
The longer-term rate of inflation almost doubled in January to 1.3%, potentially raising the odds of another interest-rate increase soon.
Financial markets see nearly no chance of a rate hike in March and low probabilities of further monetary policy tightening for the rest of the year.
Business spending on nonresidential structures contracted at a 6.6 percent rate rather than the 5.3 percent pace reported last month. The reading for the previous month was reported initially as being unchanged. Excluding food and energy, prices rose 0.3%, the largest increase since January 2012. Economists had expected income to climb by 0.4%. Government spending contracted at a 0.1 percent rate instead of rising at a 0.7 percent rate. That marked a sharp acceleration from December and was the largest monthly increase since May. The economy grew at a rate of 2.0 percent in the third quarter and expanded 2.4 percent in 2015.
“Nevertheless, it still appears that first-quarter GDP growth is on track to rebound to a very healthy 2.5 percent annualized or higher, which should dampen any concerns about an imminent recession”.
“While this is good news for the fourth quarter, it is bad news for early 2016; inventories are a bit higher than businesses would like, and so they will be adding less to them over the next few months, weighing on economic growth”, said Amy Vargo of PNC. That translated into a 0.1 percentage point drag on growth, rather than a 0.5 percentage point drag initially reported.
The slower spending contributed to weaker growth in the overall economy in the fourth quarter.
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First-quarter GDP growth estimates are above a 2.0 percent rate, but the risks are tilted to the downside amid slowing world economies, a strong dollar and the recent global stock market sell-off that tightened financial market conditions.
