27 July 2017

U.S. Economic Growth Slows

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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.

Click here to access the full article on The Wall Street Journal. 

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