The U.S. economy grew at a 0.1 percent annual rate from October through December, the weakest performance in nearly two years. But economists believe a steady housing rebound and solid spending by consumers and businesses are pushing growth higher in the current quarter.
The Commerce Department's revision to fourth-quarter growth was only slightly better than its initial estimate that the economy shrank at a rate of 0.1 percent. And it was well below the 3.1 percent growth rate reported for the July-September quarter.
The revision to the fourth-quarter gross domestic product was due to higher exports and more business investment.
GDP is the broadest measure of the economy's output. Sharp declines in defense spending and in company stockpiling held back growth in the fourth quarter.
Still, consumer spending and business investment -- two key drivers of growth -- accelerated at the end of last year. That indicated the economy would likely rebound in the current quarter.
Economists forecast that growth will pick up to an annual pace of about 1.5 percent in the January-March quarter despite higher Social Security taxes, which have reduced take-home pay for most Americans.
Growth at that pace is still relatively weak. And the economy could continue to struggle if policymakers in Washington cannot reach agreements over the budget his month, including billions of dollars in spending cuts that are set to begin on Friday.
Still, a raft of recent reports suggests that many aspects of the economy are improving. And many analysts predict growth will increase later this year.
Hiring has strengthened in recent months, providing more income to consumers. Employers have added an average of 200,000 jobs per month in the past three months. That's up from an average of 150,000 in the previous three months.
More jobs and ultra-low mortgage rates are helping the once-battered housing market recover. New-home sales jumped 16 percent to their highest level in 4 1/2 in January.
At the same time, the number of new homes available for sale remains near record lows. That means builders will likely have to start construction on more homes and apartments to keep up with demand. That should create more construction jobs.
Home prices also rose in December compared with the same month a year ago by the most in more than six years. Rising home values also contribute to the housing recovery and the broader economy. They encourage more people to buy before prices rise further. Higher prices also build homeowners' wealth, which can spur more spending and economic growth.
Businesses and consumers are also showing greater confidence despite automatic spending cuts scheduled to take effect on Friday. A measure of consumer confidence rebounded in February after a sharp fall the previous month that likely was a result of the tax increase.
Companies, meanwhile, sharply increased orders in January for a category of long-lasting manufactured goods that reflect their investment plans.
That suggests they are confident about their business prospects.