U.S.: Economic Growth in Fourth Quarter Less than Expected

Economic growth in the U.S. slowed sharply during the fourth quarter as weak spending by business and a trade deficit that widened offset the increased pace of spending by consumers that was the highest since 2006.

The gross domestic product expanded by an annualized rate of 2.6% after the spectacular increase for the third quarter of 5%, said the Commerce Department on Friday.

The economic slowdown follows two consecutive quarters of strong growth and is likely to be short given the big tailwind from the reduced price of gasoline.

Most economists said that fundamentals in the U.S. are strong enough that the blow on growth would be enough to cushion it from the weakening of economies overseas.

Even with a pullback of growth for the fourth quarter, growth continued above the pace of 2.5%, which is considered the potential of the economy. Economists expected that the GDP would increase by 3% during the recently ended fourth quarter.

U.S. stock indexes opened lower on the news extending losses while the dollar weakened against an array of currencies.

For the entire year of 2014, the economy expanded by 2.4% compared to 2.2% during 2013. The Commerce Department report comes two days after the U.S. Federal Reserve announced that the economy continued growing at a solid rate, an assessment that maintains it on track to begin increasing interest rates during 2015.

The central bank in the U.S. has maintained interest rates for the short term close to zero for over 7 years and most economists expect the first increase in June or July.

Consumer spending, which represents over two-thirds of the economic activity in the U.S., increased by 4.3% during the fourth quarter, which was the fastest monthly increase since the 2006 first quarter.

According to other data from the government, prices of gasoline have fallen by 43% since mid June, leaving more money to use on discretionary spending for Americans. A labor market, which is strengthening, despite sluggish growth in wages, is also giving the economy a boost.

Another report from the U.S. Department of Labor showed that labor costs were steadily rising during the fourth quarter, but were still below levels that would pull inflation closer to the target of 2%.

 

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