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U.S. economy grew at 2.6 percent pace in fourth quarter of 2014 U.S. economy grew at 2.6 percent pace in fourth quarter of 2014
(35 minutes later)
The U.S. economy slowed down in last three months of 2014 as federal cutbacks and a wider trade deficit weighed down growth despite a buoyant period of consumer spending. The U.S. economy slowed its pace of growth between the months of October and December, according to government data released Friday morning, expanding at a 2.6 percent pace that was slightly below market expectations and half the rate of the blowout 5 percent expansion seen in the previous three months.
The country’s gross domestic product expanded at an annualized pace of 2.6 percent during the fourth quarter, the Commerce Department said Friday morning. Though such growth is solid as measured against the nation's performance during a long recovery, it fell below market expectations and marked a step backward from the blowout expansion of the previous six months. The data drove down shares on Wall Street but also offered clues that the relative slowdown would be short-lived. The report from the Commerce Department showed buoyant consumer spending during the holiday season on everything from clothing to cars. Growth was hampered in the final quarter by weak federal spending, a relatively volatile factor that had spiked in the previous months.
For the year, the U.S. economy grew 2.4 percent, a figure in line with previous races since the Great Recession. Still, economists say that data masks some of the encouraging signs seen in recent months — some of which were evident during the last quarter. This was just the second time in the last six quarters that GDP growth fell below 3 percent. But personal consumption — which accounts for about two-thirds of the country’s economic output — rose 4.3 percent, the best pace since 2006.
Between October and December, American consumers opened up their wallets like no other time since the Great Recession. Personal consumption, which accounts for about two-thirds of the U.S. economic output, grew at a 4.3 percent in the last quarter, the best pace since 2006. Economists have said that falling oil prices — which translate into cheaper gasoline — amount to a tax break that saves consumers hundreds of dollars annually. That increased spending indicates the potentially profound effect that falling oil prices are having on the world’s largest economy. Cheaper prices at the pump have given workers hundreds of extra dollars to spend. That de facto tax cut coincides with a period of rapid job growth and could lead to a virtuous cycle in which real incomes rise, demand continues and the United States is able to insulate itself from sluggish demand overseas.
Overall GDP in the fourth quarter was dragged down by more volatile factors, including government spending, which months earlier had been a driver of growth. “The headline [GDP] number looks pretty dim, but overall it’s all about the consumer at this point,” said Michael Dolega, a senior economist at TD Bank. “Other numbers will oscillate, but the recovery at this point is based on the consumer, and the consumer did come through in Q4; no doubt about it.”
“The headline [GDP] number looks pretty dim, but overall it’s all about the consumer at this point,” said Michael Dolega, a senior economist at TD Bank. “Other numbers will oscillate, but the the recovery at this point is based on the consumer, and the consumer did come through in Q4; no doubt about it.” If the latest numbers give cause for concern, it reflects way the stronger U.S. dollar is playing with the trade deficit. As the dollar surges against the euro and yen, U.S. exports become more expensive overseas. Meantime, Americans are gobbling up cheaper goods made overseas. The result? The trade deficit subtracted 1.02 percentage points from GDP growth during the fourth quarter.
In recent weeks there had been conflicting news about the extent to which consumers were spending that money. Though October and November spending was brisk, retail sales slumped in December, according to earlier data. For all of 2014, the U.S. economy grew at a 2.4 percent pace — a relatively dreary number much in line with the previous years of a long recovery. But that number is somewhat misleading: A brutal winter in the northeast led to a sharp contraction in the first quarter. Since then, the nation has seen its best nine-month stretch of growth since 2003 and 2004. Most economists think the momentum will continue: The International Monetary Fund pegs U.S. growth in 2015 at 3.6 percent, enough to easily outpace the rest of the developed world.
Most economists think the momentum will continue: The International Monetary Fund pegs U.S. growth in 2015 at 3.6 percent. Though there are constraints to growth — particularly the trade deficit and investment cutbacks in the domestic energy industry — the country has plenty going in its favor. The unemployment rate has fallen to 5.6 percent, a post-recession low. Housing demand among millennials is showing signs of taking off. The country just wrapped up its best year of job growth since 1999. And if the labor market tightens further, wages will finally start to pick up, further boosting consumer demand.
“We certainly have a much better footing than we have had at any earlier point in the recovery,” said Dan North, lead economist for Euler Hermes, a credit insurance company. Despite the somewhat slow fourth quarter, “the U.S. economy is on a roll,” Scott Hoyt, a Moody’s Analytics senior director of consumer economics, said in a written analysis.
The GDP numbers for the last quarter of 2014 could still fluctuate, and the data will be reassessed twice more over the next two months. The GDP numbers for the last quarter of 2014 could still fluctuate, and the data will be reassessed twice more over the next two months. In the third quarter, growth was initially pegged at 3.5 percent and eventually rose to 5 percent.
Perceptions of the economy always lag behind the real-time shifts, but Americans are changing their views about the nation’s direction. Only 24 percent call the U.S. economy “poor,” compared with 39 percent a year earlier, according to a Pew Research Center survey conducted earlier this month. President Obama’s approval rating has ticked up as a result.Perceptions of the economy always lag behind the real-time shifts, but Americans are changing their views about the nation’s direction. Only 24 percent call the U.S. economy “poor,” compared with 39 percent a year earlier, according to a Pew Research Center survey conducted earlier this month. President Obama’s approval rating has ticked up as a result.
In his State of the Union address, Obama touted the economy, noting that the nation had just wrapped up its best year of job creation in 15 years. “We have risen from recession freer to write our own future than any other nation on Earth,” Obama said.In his State of the Union address, Obama touted the economy, noting that the nation had just wrapped up its best year of job creation in 15 years. “We have risen from recession freer to write our own future than any other nation on Earth,” Obama said.
But there is risk for stumbling. The slumping economies from Germany to China figure to drag down global demand. For American workers, wages have remained stubbornly flat. Lower oil prices, though a boon for consumers, are also causing a wave of cutbacks among major energy companies. There’s also some concern about the stronger dollar, which hurts U.S. export-dependent companies, whose products are now more expensive overseas. The Federal Reserve earlier this week sounded an upbeat note about the economy and indicated a midyear short-term rate hike is still a possibility.
The Federal Reserve earlier this week sounded an upbeat note about the economy and indicated a midyear short-term rate hike is still a possibility. The Fed said that the country was seeing “solid” growth and “strong” labor market expansion. But the Federal Open Market Committee’s statement indicated a wait-and-see approach on the rate hike, with the U.S. economy getting at least a few more months to prove it’s on firm ground. The Fed said it will be “patient” in determining when to raise its rates. The Fed said that the country was seeing “solid” growth and “strong” labor market expansion. But the Federal Open Market Committee’s statement indicated a wait-and-see approach on the rate hike, with the U.S. economy getting at least a few more months to prove it’s on firm ground. The Fed said it will be “patient” in determining when to raise its rates.