Upward revision in US GDP growth fails to ignite markets

US economic growth was a bit faster than previously estimated in the fourth quarter, displaying underlying strength that could bolster views that the slowdown in activity early in the year would be temporary.

The economic picture was also brightened by other data today showing new applications for unemployment benefits falling last week to their lowest level in nearly four months. Gross domestic product expanded at a 2.6 per cent annual rate, the US Commerce Department said, up from the 2.4 per cent pace it reported last month.

Nonetheless, US stocks fell on the back of the report's publication with investors not viewing the figures as positive enough to offset lingering geopolitical uncertainties. Markets were also pressured by a steep decline in Citigroup Inc shares, which suffered their biggest daily drop since November 2012 after the Federal Reserve rejected the bank's capital plan.

The GDP revision, which was just below economists’ expectations, reflected a stronger pace of consumer spending than previously estimated. Although the revised pace of expansions was still significantly slower than the 4.1 per cent rate logged in the July-September quarter, the composition of growth in the fourth quarter suggested underlying strength in the economy.

Consumer spending, which accounts for more than two thirds of US economic activity, was raised sharply higher and the pace of restocking by businesses was not as robust as previously estimated. In addition, business spending on equipment was a bit stronger than previously estimated and the decline in government outlays was a little less pronounced.

In a separate report, the US Labor department said initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 311,000, the lowest level since November.

Economists had expected first-time applications for jobless benefits to rise to 325,000 in the week ended March 22nd.

The four-week average, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, fell to its lowest level since September.

US Treasury debt prices fell on the data, with the yield on the benchmark 10-year note touching a session high. US stock index futures were trading lower.