AP News

Ahead of the Bell: US Economy

WASHINGTON (AP) — The U.S. economy likely expanded slightly in the final three months of last year, rather than contracted. And analysts expect a steady rebound in housing and resilient business and consumer spending to push growth higher in the current quarter.

Economists forecast the economy grew at a 0.5 percent annual rate in the October-December quarter, according to a survey by FactSet. That would be up from the government's initial estimate that the economy shrank at an annual rate of 0.1 percent.

The Commerce Department will release the report on Thursday at 8:30 a.m. EST.

The expected improvement would likely be due mainly to a jump in exports in December. Even with the expected uptick, the growth estimate would be the weakest in almost two years.

GDP is the broadest measure of the economy's output. Sharp declines in defense spending and in company stockpiling were a key reason for the decline during the fourth quarter.

Still, economists noted that consumer spending and business investment — two key drivers of growth — accelerated at the end of last year. That indicated the economy would likely rebound in the current quarter.

Economists forecast that growth will pick up to an annual pace of about 1.5 percent in the January-March quarter despite higher Social Security taxes, which have reduced take-home pay for most Americans. Growth at that pace is still relatively weak.

A raft of recent reports suggests that many aspects of the economy are improving. And many analysts predict growth will pick up later this year.

Hiring has picked up in recent months, providing more income. Employers have added an average of 200,000 jobs per month in the past three months. That's up from an average of 150,000 in the previous three months.

More jobs and ultra-low mortgage rates are helping the once-battered housing market recover. New home sales jumped 16 percent to their highest level in four and a half years in January.

At the same time, the number of new homes available for sale remains near record lows. That means builders will likely have to start construction on more homes and apartments to keep up with demand. That should create more construction jobs.

Home prices also rose in December compared to the same month a year ago by the most in more than six years. Rising home values also contribute to the housing recovery and the broader economy. They encourage more people to buy before prices rise further. Higher prices also build homeowners' wealth, which can spur more spending and economic growth.

Businesses and consumers are also showing greater confidence despite automatic spending cuts scheduled to take effect on Friday. A measure of consumer confidence rebounded in February after a sharp fall the previous month that likely was a result of the tax increase.

Companies, meanwhile, sharply increased orders for a category of long-lasting manufactured goods that reflect their investment plans. That suggests they are confident about their business prospects.

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