Inventories provide for expansion but home sales unemployment

Lucia Mutikani WASHINGTON Fri Feb 26, 2010 4:28pm EST Related News TREASURIES-Prices solid in low volume after GDP revisionFri, Feb twenty-six 2010US STOCKS-Wall St set for somewhat higher open after GDP dataFri, Feb twenty-six 2010New home sales strike jot down low, prices tumbleWed, Feb twenty-four 2010Housing starts post pointy reboundWed, Feb seventeen 2010Japan GDP grows as collateral spending revivesSun, Feb fourteen 2010

People emporium at Target store in New York, Dec 18, 2009.

Credit: Reuters/Shannon Stapleton

WASHINGTON (Reuters) - The economy grew a hold some-more than primarily thought in the fourth quarter, but a warn dump in Jan home sales to a seven-month low and weaker consumer view underscored the headwinds for the recovery.

U.S. sum made at home product stretched at a 5.9 percent annual rate instead of the 5.7 percent gait estimated last month, the Commerce Department pronounced on Friday.

Separate reports showed sales of formerly owned homes forsaken neatly in January, whilst flourishing impatience about efforts to kindle practice led to a drop in consumer view this month, boding ill for consumer spending.

"The GDP rebound has nonetheless to interpret to rising consumer and commercial operation confidence, and this would appear to be an critical passing from one to an additional resource for permitting the register rebound to interpret to postulated growth," pronounced Mike Englund, arch economist at Action Economics in Boulder, Colorado.

Stocks finished a hold higher on low volume as a sirocco blanketing the Northeast kept a little traders home. Treasury debt prices rose as investors focused on the diseased housing and certainty data, whilst the dollar fell.

The economy rebounded strongly in the second half of 2009 from the misfortune downturn given the 1930s, but interpretation so far, together with home sales, indicate the fast rate of enlarge in speed has proposed to delayed this year.

Economists cautioned that serious winter go on opposite most of the nation will crush interpretation on employment, housing and sell sales and harm expansion this quarter.

Sales of existent homes forsaken 7.2 percent to an annual rate of 5.05 million units last month, the lowest given June, the National Association of Realtors said.

Economists attributed most of the decrease to payback from a taxation credit-related surge in the second half of 2009, nonetheless they pronounced bad go on additionally approaching played a role.

A renouned taxation credit for first-time buyers that had been scheduled to finish in Nov spurred wake up late last year at this year"s expense. The credit was lengthened until June, however, and stretched to cover repeat buyers, that economists contend should assistance sales perk up in spring.

"Overall the design for housing is flattering weak. We are traffic with a reserve of homes for sale and a big tube of foreclosures watchful to strike the market," pronounced Bill Cheney, arch economist at John Hancock Financial Services in Boston.

"I don"t think the housing marketplace has to make firm a sum lot in sequence for the (economic) liberation to continue. First entertain GDP will be right around 3 percent."

INVENTORIES BOOST GROWTH

A pointy stop in the gait at that businesses liquidated inventories sum with increasing spending on apparatus and program to swell expansion in the fourth quarter, offsetting muted consumer spending and residential investment.

When businesses enlarge inventories or delayed the rate at that they are liquidating them, they need to encounter some-more direct out of stream production, that rises GDP.

The 5.9 percent fourth entertain expansion gait was the fastest given the third entertain of 2003 and noted a refreshing from the 2.2 percent rate in the third quarter. Markets had approaching GDP -- that measures sum products and services outlay inside of U.S. borders -- would be unrevised at a 5.7 percent pace.

For the sum of 2009, the economy engaged 2.4 percent, the greatest decrease given 1946.

Stripping out inventories, the economy stretched at an annual rate of 1.9 percent in the fourth quarter, rather than the 2.2 percent gait estimated last month, indicating expansion was usually being to a little extent driven by demand.

Business inventories, that fell usually $16.9 billion in fourth entertain instead of $33.5 billion estimated last month, combined 3.9 commission points to GDP, their greatest grant given the fourth entertain of 1987.

Consumer spending increasing at a medium 1.7 percent rate.

With consumer certainty superfluous subdued, spending is not approaching to collect up much. The Thomson Reuters/University of Michigan"s Surveys of Consumers" index of consumer view dipped to 73.6 in Feb from 74.4 in January.

"Consumers have been removing some-more desirous with the delayed swell of the impulse program, and certainty in the Obama administration"s mercantile policies has started to wane," Richard Curtin, executive of the surveys, pronounced in a statement.

Analysts additionally be concerned a resumption in residence cost declines as foreclosed homes come in to a diseased marketplace could additionally request some-more brakes to consumer spending.

"The ensuing decrease in domicile resources is an additional reason to think that expenditure expansion will sojourn diseased for a little time yet," pronounced Paul Ashworth, comparison U.S. economist at Capital Economics in Toronto.

While consumers go on to hold back, businesses are stepping up spending on apparatus and software.

Business investment rose at a 6.5 percent rate in the fourth quarter, most faster than the 2.9 percent gait estimated last month.

(Additional stating by Corbett Daly in Washington and Richard Leong and Caroline Valetkevitch in New York; Editing by Kenneth Barry)