The U.S. economy grew at a slightly less brisk pace in the fourth quarter than previously estimated, while corporate profits slowed sharply from the prior quarter, government data showed on Friday.
Analysts said while the report was evidence the economy emerged from recession in the second half of 2009, the underlying growth pace was not robust enough to reduce high unemployment.
Separately, worries about unemployment kept consumer confidence unchanged this month from February.
"We are still in a lukewarm expansion and underlying growth excluding inventory accumulation really needs to accelerate if we are going to get the jobless rate down in a reasonable period of time," said Zach Pandl, U.S. economist at Nomura Securities International in New York.
Gross domestic product expanded at a 5.6 percent annual rate, the Commerce Department said in its final report for the fourth quarter, instead of the 5.9 percent pace it estimated in February. It was still the fastest pace since the third quarter of 2003.
Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 5.9 percent rate in the October-December period. GDP increased at a 2.2 percent pace in the third quarter.
The department also said after-tax corporate profits grew 6.5 percent in the fourth quarter, slowing from a 12.7 percent rise in the prior period. It was below market expectations for a 10 percent gain. For all of 2009, after-tax profits fell 6.9 percent, the biggest decline since 2000.
U.S. stocks rose, helped by news euro zone leaders had agreed to create a safety net to assist debt-burdened Greece, while the dollar fell against the euro. U.S. government bond prices fell.
The Thomson Reuters/University of Michigan's Surveys of Consumers index was unchanged at 73.6 in March, but a touch above market expectations for 73.
"Everyone is on edge until jobs are being created. Still, economic conditions are improving," said Craig Thomas, a senior economist at PNC Financial Services in Pittsburgh.
INVENTORIES BOOST GDP
The government's final estimate of fourth-quarter GDP growth was reduced from the prior reading because contributions from business investment, consumer spending and inventories were found to be lower than earlier thought.
Much of the economy's recovery from the most brutal downturn since the 1930s has been driven by government stimulus and businesses being less aggressive in reducing inventories.
This has raised concerns that growth could sputter later this year when the boost from the two sources fades, given tepid consumer spending and high unemployment.
However, the labor market is slowly improving and payrolls are expected to have increased in March, only the second time since the recession started in December 2007.
A Reuters survey forecast the closely watched employment report due next Friday to show employers added 180,000 jobs after cutting 36,000 positions in February, largely driven by hiring for the 2010 census.
Any improvement in employment will be a psychological boost to households and may encourage more spending, which would help sustain the economy's recovery.
Excluding inventories, GDP grew at a rate of 1.7 percent instead of the 1.9 percent pace previously estimated. When businesses increase inventories or slow the rate at which they are liquidating them, manufacturers raise production and this boosts GDP.
Business inventories fell $19.7 billion in the fourth quarter, slightly more than the $16.9 billion estimated last month. They dropped $139.2 billion in the July-September period. The change in inventories added 3.79 percentage points to GDP in the last quarter.
This was the biggest percentage contribution since the fourth quarter of 1987. For the whole of 2009, the economy contracted 2.4 percent, the biggest decline since 1946, the department said.
Growth in business investment was trimmed to reflect reduced spending on structures. Commercial real estate is struggling under the weight of high vacancy rates and tight access to credit.
Still, businesses lifted spending on equipment and software at the fastest pace since the fourth quarter of 1998.
Companies have been stepping up investment in software and on Friday, Oracle Corp <ORCL.O> issued its strongest sales forecast in more than a year. See [ID:nN24243541]
Spending on new home construction was revised lower in the fourth quarter and sale of new homes have slowed this quarter, hitting a record low in February.
The rise in consumer spending was adjusted lower to a 1.6 percent rate from 1.7 percent. That was below the 2.8 percent increase in the third quarter, when consumption got a boost from the government's "cash for clunkers" auto purchase program.
