U.S. Q4 GDP growth raised to 1.4 percent; profits tumble

WASHINGTON, March 25 (Reuters) - - U.S. economic growth slowed in the fourth quarter, but not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from efforts by businesses to reduce an inventory overhang.

Gross domestic product increased at a 1.4 percent annual

rate instead of the previously reported 1.0 percent pace, the

Commerce Department said on Friday in its third GDP estimate.

GDP growth was initially estimated to have risen at only a

0.7 percent rate. The economy grew at a rate of 2.0 percent in

the third quarter and expanded 2.4 percent for all of 2015.

Economists polled by Reuters had expected that

fourth-quarter GDP growth would be unrevised at a 1.0 percent

rate.

The upward revisions reflected a stronger pace of consumer

spending than previously estimated.

Consumer spending, which accounts for more than two thirds

of U.S. economic activity, rose at a 2.4 percent pace rather

than the 2.0 percent rate reported last month. That reflected

more consumption of services than previously estimated.

The fairly solid pace of consumer spending underscores the

economy's underlying strength and should further allay fears of

a recession, which triggered a massive stock market sell-off

early this year.

Spending is being supported by a tightening labor market,

which is steadily lifting wages, and rising house prices.

Gasoline prices around $2 per gallon are also helping to

underpin household discretionary spending.

Inventory investment was revised lower. Still, inventories

remain high relative to domestic demand.

Businesses accumulated $78.3 billion worth of inventory

rather than the $81.7 billion reported last month. As a result,

inventories subtracted 0.22 percentage point from GDP growth

instead of the previously reported 0.14 percentage point.

First-quarter GDP growth estimates are around a 1.5

percent rate. But with the inventory pile still large and

shipments of capital goods ordered by businesses weak in January

and February, the risks to growth are tilted to the downside.

There was some bad news in the GDP report, with corporate

profits falling for a second straight quarter as a strong dollar

and cheap oil undercut the earnings of multi-national companies.

Profits after tax with inventory valuation and capital

consumption adjustments declined at an annual rate of 8.4

percent, the biggest drop since the first quarter of 2014, after

dropping at a 1.7 percent pace in the third quarter.

Profits from current production fell $159.6 billion after

decreasing $33.0 billion in the third quarter.

For all of 2015 profits dropped 5.1 percent, the largest

drop since 2008, after slipping 0.6 percent in 2014.

Part of the drop in profits in the fourth quarter was due to

a $20.8 billion transfer payment related to the BP oil spill in

the Gulf of Mexico in 2010, which was the largest U.S. offshore

oil spill.

Profits from the rest of the world decreased $6.5 billion in

the final three months of 2015 after sliding $23.1 billion in

the third quarter.

Manufacturing profits declined $139.2 billion during the

last quarter after decreasing by $4.1 billion in the

July-September period. Profits in the petroleum and coal

products sector tumbled $124.3 billion after rising $7.0 billion

in the third quarter.

The dollar gained 10.5 percent last year versus the

currencies of the United States' main trading partners, putting

a squeeze on the profits of multinationals such as Procter &

Gamble and Colgate-Palmolive.

A more than 60 percent plunge in crude oil prices from highs

above $100 a barrel in June 2014 has also hurt the profits of

oilfield service firms like Schlumberger and Halliburton

.

But with the dollar's appreciation slowing since the start

of the year and the oil price slide ebbing, corporate profits

are poised to rise, helping to underpin job growth.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)