U.S. economic growth retreated to a modest pace in the final
months of 2014, underscoring obstacles facing the recovery as troubles mount
abroad. Gross domestic product—the broadest measure of goods and services
produced across the economy—expanded at a 2.6% annual rate in the fourth
quarter, the Commerce Department said Friday. The economy grew 5% in the third
quarter and 4.6% in the second quarter after contracting in the first three
months of the year.
Economists surveyed by The Wall Street Journal had expected
fourth-quarter growth of 3.2%. The report portrayed a persistently uneven
recovery that has yet to fire on all cylinders. Consumers—buoyed by surging job
growth and a dive in gasoline prices—boosted spending in late 2014 at the
fastest pace in almost nine years. But business investment slowed to a paltry
pace, government outlays fell and export growth eased.
For 2014 as a whole, GDP expanded 2.4%, only slightly better
than the average 2.2% growth of 2010-2013, a moderate pace compared with prior
growth periods. During the 1990s, the economy grew an average 3.4% a year. And
many economists expect sluggish growth in the current quarter—perhaps to a pace
of between 2% and 3%. For now consumers remain the key driver of growth in the
world’s largest economy.
But the other major components of output flashed new signs
of weakness. Business investment—reflecting spending on equipment, software and
intellectual-property products—grew at a paltry 1.9% rate. Government spending declined at a 2.2% pace,
reflecting a sharp drop in defense outlays.
Export growth continued to slow. Exports grew at a 2.8%
rate, down from the third quarter’s 4.5% pace. That comes amid flagging growth
in Asia and turbulence in Europe’s economies. The housing market continues to
underperform, though real estate construction picked up slightly from summer.
Residential investment rose at a 4.1% pace in the fourth quarter, up from the
third’s 3.2% rate.
Despite the economy’s expansion, inflation has been heading
down, due largely to a sharp drop in oil prices since the summer as global
supplies pile up and demand growth slows.
The price index for personal consumption expenditures—the
Fed’s preferred measure for inflation—fell at a 0.5% annual rate in the fourth
quarter, compared with the 1.2% annualized increase during the third quarter
and below the Fed’s 2% inflation target.
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