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PREVIEW-Consumers, trade seen boosting U.S. 4th-quarter growth

Lucia Mutikani
Tuesday, 28 Jan 2014 | 4:09 PM ET

* Fourth-quarter GDP growth forecast at 3.2 percent annual rate

* Consumer spending seen accelerating but inflation stays muted

* Inventories seen making modest contribution to growth

WASHINGTON, Jan 28 (Reuters) - Rising household spending and exports likely pushed the U.S. economy ahead at a decent clip in the fourth quarter, building a foundation for stronger growth this year.

Gross domestic product probably grew at a 3.2 percent annual rate, according to a Reuters survey of economists. While that expansion would be a step back from the third quarter's brisk 4.1 percent pace, its composition is expected to be healthier.

More of the growth should come from final demand and less from an accumulation of stocks in warehouses, although a further increase in inventories is expected.

"Consumer spending was one of the solid supports. The other was on the inventory front," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.

In the third quarter, inventories rose $115.7 billion, adding 1.67 percentage points to GDP growth, and many economists expected an effort to sell off those stocks to bring growth to a sub-2-percent pace in the fourth quarter.

But a jump in consumer spending made the third quarter inventory build look prescient.

"A lot of people were expecting to see a swing the other way of the same magnitude. That has proven not to be the case," Bullard said.

Consumer spending is expected to be the main driver of fourth-quarter growth, but other segments of the economy such as trade and business investment are also seen lending a hand.

The Commerce Department will release its first snapshot of fourth-quarter GDP at 8:30 a.m. (1330 GMT) on Thursday, a day after the Federal Reserve wraps up a two-day policy meeting.

The Fed gave the economy a vote of confidence last month, announcing it would start to scale back its hefty monthly bond purchases. It is expected to announce another reduction to the program on Wednesday despite some recent weak data, including reports on December employment and durable goods orders.

"We expect the Fed to stay the course on tapering, reducing purchases by a further $10 billion per month, as they are likely to look through the recent spate of disappointing economic reports," said Millan Mulraine, deputy chief economist at TD Securities in New York.

CONSUMER SPENDING TO SHINE

Consumer spending was forecast to have risen at a pace as fast as 4 percent, which would be the strongest in three years. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2 percent pace in the third quarter.

Despite the anticipated spending surge, inflation pressures likely remained benign. A price index in the GDP report is expected to have risen at a 0.7 percent rate, decelerating from the third-quarter's 1.9 percent pace.

A core measure that strips out food and energy costs likely rose at a 1.1 percent rate after increasing at a 1.4 percent pace in the July-September period.

"It's really hard to get inflation without seeing any upside pressure on wages, and to get that you need to see a considerable decline and tightening in the jobs market," said Jacob Oubina, a senior economist at RBC Capital Markets in New York.

Trade likely also gave growth a lift, thanks to firmer global growth and declining petroleum imports, which narrowed the trade deficit. The United States is ramping up domestic energy production, reducing its dependency of foreign oil.

Business spending on equipment likely accelerated after rising only at a 0.2 percent pace in the third quarter. However, a report on Tuesday showing orders for capital goods, excluding defense and aircraft, dropped in December suggested it would cool.

"We might see a pullback in whatever growth we are going to see from equipment in the fourth quarter. That's going to be a headwind to first-quarter growth," said Wells Fargo Securities' Bullard.

Even so, a lessening of the fiscal austerity that gripped Washington last year should keep the economy on a firmer growth path. Growth for the whole of this year is forecast at 2.9 percent, up from last year's estimated 1.9 percent.

Some moderation is expected in business spending on nonresidential structures in the fourth quarter.

A drop in brokers' commissions tied to softer home sales over the summer and weak spending on home improvements could see residential investment falling for the first time since the third quarter of 2010, even though homebuilding looked well maintained.

Government spending likely fell, reflecting a 16-day partial shutdown of the federal government in October.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)