AP News

Ahead of the Bell: Economy-GDP

WASHINGTON (AP) — The Commerce Department issues its second of three estimates of how fast the U.S. economy grew in the October-December quarter. The report will be released at 8:30 a.m. EST.

SLOWER GROWTH: The forecast is that growth will be revised lower to an annual rate of 2.5 percent for the fourth quarter, according to a survey by FactSet. That would be a downward revision from the government's initial estimate of a 3.2 percent annual rate.

WINTER HIT: For the current January-March quarter, many analysts foresee a further slowdown to around 2 percent annual growth. The weakness in the first quarter of 2014 is expected to come from the severe winter weather that has disrupted activity in much of the country.

Economists still believe that once spring arrives, there will be a bounce back to stronger growth levels. Many analysts are forecasting that growth for the entire year will approach 3 percent, a significant improvement from last year's 1.9 percent increase in the gross domestic product, the economy's total output of goods and services.

Growth was held back last year by higher federal taxes and government spending cuts. Economists estimate that the squeeze from the government subtracted about 1.5 percentage points from growth last year.

But that drag is expected to lessen this year, which helps explain why analysts are more optimistic about the economy's growth prospects.

Federal Reserve Chair Janet Yellen said Thursday that the Fed still expects the economy to strengthen this year, which would help put more people to work. But she told the Senate Banking Committee that recent economic data have pointed to weaker-than-expected gains in consumer spending and job growth. She said the Fed will be watching to see whether the slowdown proves only a temporary blip caused by severe winter weather.

The Fed is gradually reducing its monthly bond purchases, which have been intended to keep long-term loan rates low to encourage spending and growth. It reduced its original $85 billion monthly pace in December and again in January in $10 billion steps to a current level of $65 billion.

Many economists think that as long as the economy keeps improving, the Fed will keep cutting the bond purchases by $10 billion at each meeting this year until ending the program in December.

But Yellen stressed, as she has before, that the Fed's course is not preset and could be modified if there was a "significant change" in the Fed's outlook.

She again repeated a commitment to keep a key short-term interest rate at a record low "well past" the time unemployment drops below 6.5 percent. The unemployment rate is now 6.6 percent.

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