The US economy grew at an unexpectedly weak pace of 0.6 per cent in the fourth quarter, the Department of Commerce said on Wednesday, heightening fears of a slide into recession in 2008.
It was the weakest showing for US gross domestic product growth since 2002, coming in well below expectations that the world's largest economy would slow but continue to grow at more than 1 per cent. In the third quarter, US GDP grew at a strong rate of 4.9 per cent.
The sharply slower growth in the US economy was mostly driven by the housing slump, where spending plunged 23.9 per cent in the fourth quarter - a steeper decline than the 20.5 per cent drop in the third quarter. Consumer spending grew at an annual rate of 2 per cent, or slower compared with the 2.8 per cent figure in the third quarter.
Inventories were drawn down at an unexpectedly fast $3.4bn annual rate, wiping 1.3 percentage points off the growth rate in the fourth quarter, but raising the possibility that companies have already made the most significant adjustments to their stockpiles.
"While slower growth is no surprise, the composition of today's report - featuring a very large decline in inventories in the quarter past - might raise prospects for a gain in real GDP in the first quarter 2008 (we expect a 0.1% decline)," said Steven Wieting of Citigroup.
Earlier on Wednesday, ADP, the payroll services group, released its monthly report on new private sector jobs, showing an increase of 130,000 jobs in January on a seasonally adjusted basis, compared with expectations of a 40,000 increase. "This level of growth is consistent with a rebound in the labour market", wrote Goldman Sachs analysts.
While employment in the construction industry fell by 13,000 jobs, and manufacturing employment was flat, employment in the service sector grew by 141,000 jobs.
Combined, the weak GDP data and the strong showing on the ADP report will increase the belief that while housing market woes continue to worsen, other parts of the US economy are holding up.
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