Economy expands at a 'less than expected' 2.6% in 4th quarter
The US economy expanded at a 2.6% clip in the 4th quarter of last year, as rising imports and less federal spending put a brake on growth. Growth in the 3rd quarter was reported at 5%, making the 4th quarter number considerably less than expected.
The consensus among economists was that the 4th quarter number would be 3.1%. But the strong dollar made American products more expensive overseas and vastly increased imports.
In the fourth quarter, consumer spending, which accounts for more than two-thirds of the economy, grew a healthy 4.3% as plunging gasoline prices and strong job growth bolstered Americans' confidence.
But government spending declined 7.5% as defense outlays tumbled after rising sharply in the third quarter.
Business investment increased just 1.9% as companies girded for a strengthening dollar and sluggish overseas growth that's expected to dampen exports, and energy companies grappled with plummeting oil prices.
Exports slowed as well, rising 2.8%, while imports increased sharply as the stronger dollar made foreign products less expensive for U.S. consumers. The widening trade gap subtracted from economic growth.
Despite the slowdown, many economists expect the economy to grow a solid 3% this year.
"With the collapse in energy prices increasing households' purchasing power, we expect strong consumption growth to continue driving GDP growth in the first half of this year," economist Paul Ashworth of Capital Economics wrote in a note to clients.
Recent reports have shown consumer spending rising solidly in the fourth quarter despite a slowdown in retail sales last month. Measures of business investment, however, have been declining.
More than any other factor, the collapse in the price of energy has benefitted the macro economy. Every indice is affected by the cost of energy and with oil now below $50 bbl, the extra cash in people's pockets puts them in the mood to spend.
But other business indicators are troublesome, including a rise in inventories and higher tax bills. That may mean a slowdown in hiring over the next quarter as companies retrench and prepare for the Fed's expected rise in interest rates later this year.
All in all, the numbers aren't too bad and show economic growth gaining some momentum. A predicted 3% growth in the economy for 2015 would continue the painfully slow recovery that has been underway for 6 years.