Growth in the final three months of last year was pushed up to 0.4 percent from 0.1 percent in the government's third and final analysis of gross domestic product.
While that is the slowest growth rate in almost two years, the latest figures suggest the U.S. continued to expand at a modest pace in the fourth quarter after stripping out the effects of inventories and a surprisingly large drop in government spending.
The newly revised GDP numbers had little effect on U.S. markets, but stocks moved higher in recent action.
The uptick in fourth-quarter GDP mainly stemmed from a sharper gain in business investment in things like office buildings, the Commerce Department said Thursday. Spending jumped at an annual rate of 16.7 percent instead of 5.8 percent as previously reported, aided in no small part by improved profits.
After-tax corporate profits climbed 3.3 percent in the fourth quarter and 3.7 percent for all of 2012, adjusted for inventories and other special accounting effects. The level of adjusted corporate profits - the highest ever - are now 41 percent larger compared to 2007, the year before the last recession began. That could lead to more business spending later in the year.
Businesses "were much more optimistic, if you use their investment decisions as a true sign of corporate attitudes," said Joel Naroff of Naroff Economic Advisors.
Foreign trade, meanwhile, didn't weigh on U.S. growth in the fourth quarter as much as initially believed. Exports fell 2.8 percent instead of 3.9 percent.
On the negative side, the increase in consumer spending, the main engine of U.S. growth, was revised down to 1.8 percent from 2.1 percent. Yet the pace of spending at year end was still faster compared to last spring and summer.
Most other figures in the revised GDP report were little changed. GDP reflects the value of all goods and services produced and is the broadest measure of a nation's economic health.
The drop in year-end growth from the 3.1 percent clip in the third quarter was largely tied to a pair of events that might not be repeated anytime soon: a 22.1 percent plunge in military spending and an unusually small buildup in inventories.
Companies restocked warehouse shelves at a much lower pace after overproducing in the third quarter. The inventory spike made U.S. growth look much better in the third quarter - and much worse in the fourth - than they actually were.
Yet the actual demand for U.S.-produced goods and services, a better gauge of economic trends, has been little changed in the past seven quarters, expanding at an average rate of 2.1 percent. That's consistent with a modest, if lackluster, pace of growth.
Looking ahead, demand for goods and services appears to be hewing to a similar path in the first three months of 2013. The U.S. is expected to expand at a 2.5 percent rate, according to the MarketWatch forecast, though a large slice of the gain could stem from higher inventories and a snapback in government spending.
What might give the economy a more durable foundation are record corporate profits. The extra financial cushion could enable businesses to accelerate investment and add more workers later in the year.
The higher profits would also seem to support the argument of equity bulls who say the run-up in U.S. stock prices is justified by an improvement in corporate balance sheets.
In the fourth quarter, the gusher of earnings prompted businesses to return more cash to shareholders, though some dividends were granted on a special onetime basis ahead of a tax increase in 2013. Dividends soared 16.3 percent to $124.3 billion from just a $12.8 billion rise in the third quarter.
Workers have not benefited nearly as much from surging corporate profits. Wages rose a seasonally adjusted 3.3 percent in 2012, about twice as fast as the rate of inflation.
The sluggish growth in wages, combined with recent payroll tax increases and higher gas prices, could act as a drag on consumer spending. Americans could also decide to set more money aside to rebuild a low savings rate.
Visit MarketWatch at www.marketwatch.com
Distributed by MCT Information Services
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