WRAPUP 3-U.S. 4th-quarter growth revised slightly lower

* Economy grows at 5.6 pct pace in fourth-quarter

* Ex-inventories, GDP up 1.7 pct, spending trimmed

* Consumer sentiment steady in March
(Recasts, updates markets)

By Lucia Mutikani

WASHINGTON, March 26 (BestGrowthStock) – The U.S. economy grew at a
slightly less brisk pace in the fourth quarter than previously
estimated and the momentum is expected to slow this year as the
boost from inventories fades.

While the report on Friday — which also showed continued
strength in corporate profits — was evidence the economy
emerged from recession in the second half of 2009, underlying
growth was not robust enough to cut high unemployment.

Separately, worries about jobs kept consumer confidence
unchanged this month from February.

“We are still in a lukewarm expansion and underlying growth
excluding inventory accumulation really needs to accelerate if
we are going to get the jobless rate down in a reasonable
period of time,” said Zach Pandl, U.S. economist at Nomura
Securities International in New York.

Gross domestic product — which measures total goods and
services output within U.S. borders — expanded at a 5.6
percent annual rate, the Commerce Department said in its final
report for the fourth quarter, instead of 5.9 percent as it had
previously estimated.

That was below market expectation for a 5.9 percent rate,
but remained the fastest pace since the third quarter of 2003.

Although an alternative measure of growth, gross domestic
income, or GDI, increased for the first time since the first
quarter of 2008, analysts said it did not alter their views of
slow labor market recovery.

GDI measures the economy’s performance from the income
side. It surged at a 6.2 percent rate after falling 0.4 percent
in the third quarter.

“It’s encouraging because it means companies are well
positioned to expand and increase their workforces if they
wanted to, but there are lot of obstacles to that, the economic
outlook itself and the low capacity utilization,” said Harm
Bandholz, an economist at Unicredit Research in New York.

With the unemployment rate at 9.7 percent, the labor market
is the Achilles heel of the economy’s recovery from its worst
downturn since the 1930s.

That is casting doubts over the durability of the recovery,
making businesses reluctant to hire new workers even as their
profits continue to grow.

After-tax corporate profits grew 6.5 percent in the fourth
quarter, slowing from a 12.7 percent rise in the prior period,
but were 22.8 percent higher compared to the last three months
of 2008.

The data had little impact on U.S. financial markets, with
stocks rising as a standby aid package announced by euro zone
leaders eased worries about Greece’s debt problems. The dollar
fell against the euro, while U.S. government debt prices rose.

INVENTORIES BOOST GROWTH

The government’s final estimate of fourth-quarter GDP
growth was reduced from the prior reading because contributions
from business investment, consumer spending and inventories
were found to be lower than earlier thought.

Much of the economy’s recovery has been driven by
government stimulus and businesses being less aggressive in
reducing inventories. This is raising concerns growth may slow
later this year when the boost from the two sources fades,
given tepid consumer spending and high unemployment.

“Solid, if lackluster, growth in consumer spending and
robust growth in both capital spending on equipment and exports
will help to keep growth in the 2.5 percent to 3 percent range
in the next few quarters,” said Nariman Behravesh, chief
economist at IHS Global Insight in Lexington in Massachusetts.

The Thomson Reuters/University of Michigan’s Surveys of
Consumers index was unchanged at 73.6 in March on job worries,
but a touch above market expectations for 73.

However, the labor market is slowly improving and payrolls
are expected to have increased in March, which would mark only
the second time since the recession started in December 2007.

A preliminary Reuters survey forecast the closely watched
employment report due next Friday to show employers added
180,000 jobs after cutting 36,000 positions in February,
largely driven by hiring for the 2010 census.

Excluding inventories, GDP grew at a rate of 1.7 percent
instead of the 1.9 percent pace previously estimated.

When businesses increase inventories or slow the rate at
which they are liquidating them, manufacturers raise production
and this boosts GDP. Business inventories fell $19.7 billion in
the fourth quarter, slightly more than the $16.9 billion
estimated last month.

Inventories dropped $139.2 billion in the July-September
period. The change in inventories added 3.79 percentage points
to GDP in the last quarter. This was the biggest percentage
contribution since the fourth quarter of 1987.

For the whole of 2009, the economy contracted 2.4 percent,
the biggest decline since 1946, the department said. Growth in
business investment was trimmed to reflect reduced spending on
structures. Commercial real estate is struggling under the
weight of high vacancy rates and tight access to credit.

Still, businesses lifted spending on equipment and software
at the fastest pace since the fourth quarter of 1998.

Companies have been stepping up investment in software and
on Friday, Oracle Corp (ORCL.O: ) issued its strongest sales
forecast in more than a year. For details, see [ID:nN24243541]

Spending on new home construction was revised lower in the
fourth quarter and sale of new homes have slowed this quarter,
hitting a record low in February.

The rise in consumer spending was adjusted lower to a 1.6
percent rate from 1.7 percent.

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Graphic on GDP http://link.reuters.com/run45j

Graphic on consumer sentiment http://link.reuters.com/hyq45j

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(Additional reporting by Ellen Freilich in New York)

WRAPUP 3-U.S. 4th-quarter growth revised slightly lower