Revised data has shown that while US economic growth slowed in the fourth quarter of 2015, it did not decelerate as much as earlier assumed.

According to the Commerce Department’s second read on GDP, the US economy grew at an annualized 1% in the final 3 months of last year. That compared to the initial read of 0.7% released a month ago. The revised number surprised the market and analysts who had expected a downward revision to 0.4%.

Despite the better-than-expected data, investor reaction was muted. Closer inspection of the numbers showed that much of the upward revision was attributable to higher inventory investment. This will likely adversely affect GDP figures for the 1st quarter of 2016 as the overhang caused by less aggressive reduction in inventory means that businesses will be less likely to order more.

“The main effect on investors was to raise fears that the Federal Reserve would see the better-than-expected data as a green light to press on with plans to raise interest rates further this year,” said Erik Larsson, chief market strategist at Nihon International.

Estimates for first quarter US GDP are as optimistic as an annualized 2.5% but expectations at Nihon International are skewed to the downside with, in their view, the slowdown in China and a strong US dollar acting as a drag on US growth.

“Nihon International are not modifying our outlook in light of this GDP revision. We still expect the US economy to flirt with technical recession this year and we see the upcoming presidential election as adding pressure on the Federal Reserve to pull out all the stops to ensure the economy doesn’t compromise the Democratic candidate’s campaign” said Larsson.

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