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U.S. GDP likely to be revised to 1.6%
By Rex Nutting, MarketWatch
Last Update: 6:05 PM ET Feb 27, 2006

WASHINGTON (MarketWatch) - The U.S. economy didn't perform quite as horribly in the fourth quarter as initially portrayed.

But it still wasn't anything to cheer about.

The Commerce Department will release its second estimate of fourth-quarter gross domestic product on Tuesday at 8:30 a.m. Eastern.

Economists surveyed by MarketWatch are looking for an upward revision to 1.6% annualized growth vs. the initial estimate of 1.1%. It would still be the weakest growth in three years. See Economic Calendar.

The upward revision will mainly reflect higher inventory building, not more final sales, said James O'Sullivan, an economist for UBS.

Consumer spending and business investment will likely be revised higher marginally, while foreign trade was more of a drag than thought. Construction spending also contributed more to growth than previously assumed.

The inflation figures embedded in the GDP report won't be changed, economists say.
The weakness in the fourth quarter is only temporary, with growth bouncing back to a 5% annual pace in the current quarter, said Joseph LaVorgna, an economist for Deutsche Bank. "Much of this surge is due to unseasonably warm weather that got the quarter off to a tremendous start."

After that, economic growth will likely resume a 3% to 3.5% pace for the rest of the year, the majority say.

The GDP report will also include the government's first estimate of fourth-quarter corporate profits.

Before-tax profits likely rose 9% from the third quarter's levels after a 4% drop in the third quarter than was due to losses from the hurricanes, said Haseeb Ahmed, an economist for JPMorgan Chase. "Our forecast would put adjusted profits' share of GDP at a 39-year high of 11.1%."

Since 1970, corporate profits have averaged 8.4% of GDP.
Rex Nutting is Washington bureau chief of MarketWatch.