U.S. economic growth braked more sharply than initially thought in the fourth quarter amid a moderate increase in business inventories and a wider trade deficit, but strong domestic demand brightened the outlook.

    Gross domestic product expanded at a 2.2 percent annual pace, revised down from the 2.6 percent pace estimated in January, the Commerce Department said Friday. The economy grew at a 5 percent rate in the third quarter.

    Growth is poised to pick up in the first quarter now that the threat of an inventory overhang has diminished. However, an exceptionally cold and snowy February, as well as reductions in oil and gas drilling, could limit the pace of expansion.

    “The composition of growth is looking much better, we are setting up for a solid quarter for the economy. The first quarter is still work in progress,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

    Businesses accumulated US$88.4 billion worth of inventory in the fourth quarter, far less than the US$113.1 billion the government had estimated in January.

    That resulted in the GDP growth contribution from inventories being cut to one-tenth of a percentage point from 0.8 percentage points previously.

    With households bullish about the economy’s prospects, thanks to a tightening labor market and lower gasoline prices, consumer spending is likely to remain at lofty levels this year.

    A second report showed the University of Michigan’s final February reading on the overall index on consumer sentiment was 95.4, higher than the initial reading of 93.6.

    While that was a retreat from January’s reading of 98.1, it was the second highest level since January 2007.

    (SD-Agencies)