4Q GDP Revised Up to 2.5%

Washington, DC, March 29, 2007--The economy grew at a 2.5% annual pace in the final three months of 2006, slightly faster than the previous estimate of 2.2%, the Commerce Department reported Thursday.

The upward revision to gross domestic product mainly reflected higher prices for trucks that boosted vehicle inventories. Investments in software were revised slightly lower.

Economists were expecting the 2.2% estimate to be unrevised. The economy grew 2% in the third quarter.

It was the third straight quarter with slower growth than the economy's long-term potential of about 3%. Economists expect another quarter of below-trend growth in the current quarter as well.

For all of 2006, the economy grew 3.3%, nearly the same as the 3.2% growth in 2005.

The personal consumption expenditure price index fell at a 1% annual rate (revised from 0.9% reported earlier), while the core PCE price index, which excludes food and energy, rose 1.8%, revised from 1.9%.

The year-over-year increase in core PCE prices was unrevised at 2.2%, described by Bernanke as "uncomfortably high."

Corporate profits declined for the first time in five quarters, falling $4.9 billion, or a 0.3% quarterly rate, in the fourth quarter, after rising $61.5 billion, or 3.9% in the third quarter. After-tax profits rose $9.6 billion, or 0.8%.

Before-tax profits were up 18.3% from the fourth quarter of 2005 to the fourth quarter of 2006.

Net cash flow fell by $1.1 billion, or 0.1%.

As in the previous estimate, growth was boosted by consumer spending, net exports and government spending.

Residential investment subtracted 1.2 percentage points from growth, the biggest drag from housing since 1981. Businesses also invested less in equipment and software.

Final sales rose 3.7%, revised from 3.6%

Consumer spending was the main driver of the economy, rising 4.2%, unrevised. Spending on durable goods increased 4.4%, spending on nondurable goods increased 5.9% and spending on services increased 3.4%.

Consumer spending added 2.9 percentage points to growth.

Investments in homes and businesses declined sharply in the quarter. Business investments dropped 3.1%, the largest decline in four years. Investments in equipment and software fell 4.8%. Investments in structures increased 0.8%.

Preliminary data released Wednesday show capital spending fell further in February after a big decline in January.

Investments in housing fell 19.8% in the fourth quarter, the largest decline since 1991.

Fixed investments subtracted 1.5 percentage points from growth. Inventories subtracted 1.2 percentage points from growth.

Imports fell 2.6%, the biggest decline in nearly four years. Exports grew 10.6%. Net imports added 1.6 percentage points to growth, the biggest contribution in 10 years.

Government spending rose 3.4%, contributing 0.6 percentage points to GDP.

In current dollar terms, the economy grew 4.1% to an annual rate of $13.46 trillion.