WASHINGTON (Reuters) –
The economy grew at a much slower pace than previously thought in the third quarter, restrained by weak business investment and a slightly more aggressive liquidation of inventories, data showed on Tuesday.
The Commerce Department's final estimate showed gross domestic product grew at a 2.2 percent annual rate instead of the 2.8 percent pace it reported last month. Analysts polled by Reuters had forecast the report to show GDP, which measures total goods and services output within U.S. borders, unrevised at a 2.8 percent growth rate in the third quarter.
It was still the fastest pace since the third quarter of 2007 and ended four straight quarters of decline in output. The resumption of growth in the July-September period probably ended the most brutal recession since the 1930s.
Growth was boosted by government stimulus programs, including the popular cash for clunkers and tax credit for first-time home buyers, and debate continues to rage over the sustainability of the recovery once government support wanes.
U.S. financial markets were little moved by the report.
Data such as retail sales, business inventories and the trade balance strongly indicate the economic growth pace picked up speed in the fourth quarter.
Economists' forecasts for fourth-quarter GDP growth have ranged from 4.0 percent to 4.5 percent. Last week, the Federal Reserve gave a cautiously upbeat assessment of the economy and promised to hold overnight lending rates near zero for an "extended period" to aid the economic recovery.
"I expect the fourth quarter (GDP) will still be strong with retail sales better-than-expected, but business spending is still a wildcard. There is a lot of cash, but I'm not sure if the business spending is there yet," said Christopher Low, chief economist with FTN Financial in New York.
Business spending in the third quarter was weaker than the government had estimated last month. Business investment fell at a 5.9 percent rate instead of 4.1 percent, the department said.
NOT YET THERE
While the economy has turned the corner, the effects of the recession continue to reverberate. Ford Motor Co said Monday it was offering its 41,000 U.S. factory workers buyouts and early retirement offers in a bid to reduce its payroll costs to achieve profitability by 2011.
A deeper than initially thought slump in the construction of nonresidential structures and stronger demand for imports, which overshadowed the growth in exports, held back growth in the third quarter, the report showed.
Nonresidential building activity dropped 18.4 percent in the third quarter rather than 15.1 percent, a reflection of the troubles in the commercial property market. That shaved 0.68 percentage points off GDP.
Imports jumped 21.3 percent, the biggest gain since the first quarter of 1984, instead of 20.8 percent, while exports grew 17.8 percent. That left a trade gap which lopped off 0.81 percentage points from GDP in the last quarter.
While consumer spending was slightly revised down, it helped to offset the drag on growth from a steep drop in business investment. Consumer spending, which normally accounts for about 70 percent of U.S. economic activity, grew at a 2.8 percent annual pace in the third quarter rather than the 2.9 percent rate the government estimated in November.
Businesses liquidated accumulated stocks of unsold goods more aggressively than previously thought. Business inventories fell $139.2 billion in the third quarter, rather than the $133.4 billion the government estimated in November.
Inventories plunged a record $160.2 billion in the second quarter. The change in inventories added 0.69 percentage points to real GDP in the third quarter.
Excluding inventories, GDP rose at a 1.5 percent rate instead of 1.9 percent. Final sales increased at a 0.7 percent pace in the second quarter.
The GDP report also showed after tax corporate profits grew 12.7 percent in the third quarter, instead of the 13.4 percent forecast last month. It was still the largest gain since the first quarter of 2004, but below market expectations for 13.4 percent. Deeper cost-cutting by companies, mostly headcount reduction, to deal with weak demand has boosted corporate profits.
(Additional reporting by Richard Leong in New York; Editing by Andrea Ricci)
The Federal Bureau of Investigation is investigating a hacking that targeted Citigroup Inc and resulted in the theft of tens of million of dollars, the Wall Street Journal said, citing U.S. government officials.
The cyber attack by hackers believed to be linked to a Russian cyber gang was aimed at Citi's Citibank subsidiary, the paper said, adding it was unclear whether the hackers gained access to the bank's systems directly or through third parties.
Two other entities, including a U.S. government agency, were also attacked by hackers, the paper said, citing people familiar with the attack on Citibank.
The cyber attack on Citibank was believed to have taken place last summer but U.S. investigators suspect the attack could have taken place a year earlier, the paper said.
"We had no breach of the system and there were no losses, no customer losses, no bank losses," Joe Petro, managing director of Citigroup's Security and Investigative services told the paper.
"Any allegation that the FBI is working a case at Citigroup involving tens of millions of losses is just not true," he said.
The FBI's press office could not be immediately reached for comment by Reuters outside regular U.S. business hours, while a Citigroup spokesman in Hong Kong was not immediately available for comment.
(Reporting by Ajay Kamalakaran in Bangalore; Editing by Valerie Lee)
HONG KONG (Reuters) –
The dollar held firm on Tuesday against major currencies, and hit a two-month high against the yen, while Asian shares edged up as technology stocks tracked a rally in their peers on Wall Street.
The dollar touched 91.45 yen, its highest level since late October, helped by unwinding of dollar short positions ahead of the year end, and was steady against a basket of major currencies (.DXY) after reaching multi-week highs on Monday.
Recent robust U.S. economic figures are also supporting the dollar, raising expectations that U.S. interest rates may rise sooner than earlier thought.
"It does all get back to when the Fed may or may not be tightening policy and the market is heading toward thinking they will get to tightening in Q3 next year," said Greg Gibbs, a currency strategist at RBS in Sydney.
The dollar's strength helped lift shares of Asian exporters, notably in Japan where the Nikkei index (.N225) hit an eight-week high as exporters were boosted by a weakening yen.
The Nikkei was up 1.2 percent by late morning.
Gold picked up, trading at $1,093.2 an ounce after hitting a six-and-a-half week low at $1,090.65 on Monday when it was hit by the dollar's rise.
The MSCI index of Asia Pacific stocks traded outside Japan rose 0.6 percent while the Thomson Reuters index of regional shares (.TRXFLDAXPU) was 0.7 percent higher.
Asian technology shares tracked a rally on Wall Street after Barclays upgraded chipmaker Intel Corp (INTC.O), which helped push the Nasdaq (.IXIC) to a 15-month high. An upgrade for aluminum producer Alcoa Inc (AA.N) and the U.S. healthcare bill's advance in the Senate underpinned overall market sentiment, lifting the Dow Jones (.DJI) by 0.8 percent.
Stock market gains generally were modest as investors are keen to lock in gains this year, which has seen the MSCI Asia ex-Japan index surge 60 percent.
Optimism about the sustainability of global economic recovery meanwhile was reinforced by Chicago Federal Reserve Bank President Charles Evans, who forecast the U.S. economy would grow 3 to 3.5 percent over the next 18 months but low inflation would allow the central bank to maintain easy monetary policy for an extended period.
Currency markets, however, are speculating that the U.S. economy could recover faster than the euro zone and U.S. rates will rise earlier.
Rising U.S. yields are eating into the Australian dollar's interest rate advantage and pushed it to an 11-week low at $0.8782 at one point on Tuesday.
The dollar's broad strength has also put pressure on the oil price but it was steady on Tuesday at $73.76 a barrel ahead of an OPEC meeting in Angola, when the cartel is expected to leave output limits unchanged. The market was also awaiting U.S. crude inventory data due later in the day.
(Additional reporting by Charlotte Cooper in TOKYO; editing by Tomasz Janowski)