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January 30, 2016

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Home » Business » Economy

US economy loses pace in Q4 in line with expectations

Source: Agencies | January 30, 2016, Saturday | Print Edition

US economic growth braked sharply in the fourth quarter of last year as businesses stepped up efforts to reduce an inventory glut and a strong dollar and tepid global demand weighed on exports.

Gross domestic product increased at a 0.7 percent annual rate, the Commerce Department said yesterday in a report that showed a further cutback in investment by energy firms grappling with lower oil prices. Growth in consumer spending also slowed as unseasonably mild weather cut into spending on utilities.

The fourth-quarter growth pace was in line with economists’ expectations and followed a 2 percent rate in the third quarter. The economy grew 2.4 percent in 2015 after a similar rise in 2014. Excluding inventories and trade, the economy grew at a 1.6 percent pace in the fourth quarter.

The Federal Reserve on Wednesday acknowledged that growth “slowed late last year,” but also noted that “labor market conditions improved further.”

“To the extent that much of this slowdown could be attributed to the drag coming from the adverse global headwinds, strong dollar and the prolonged inventory correction, the Fed is likely to take some solace in the encouraging signs of continued strength in the domestic-facing side of the economy,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The US central bank raised interest rates in December for the first time since June 2006. Though the Fed has not ruled out another hike in March, financial markets volatility could see that delayed until June.

In the fourth quarter, businesses accumulated US$68.6 billion worth of inventory. While that was down from US$85.5 billion in the third quarter, it was a bit more than economists had expected, suggesting inventories could remain a drag on growth in the first quarter.

The small inventory build subtracted 0.45 percentage points from the first estimate of fourth-quarter GDP growth.

Consumer spending cools

Consumer spending, which accounts for more than two thirds of US economic activity, rose at a 2.2 percent rate. Though that was a step-down from the 3 percent pace notched in the third quarter, the gain was above economists’ expectations.

Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter.

With gasoline prices around US$2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, economists believe the slowdown in consumer spending will be short-lived.

Income at the disposal of households after accounting for taxes and inflation gained 3.2 percent in the fourth quarter after rising 3.8 percent in the prior period. Savings rose to a lofty US$739.3 billion from US$700.6 billion in the third quarter.

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