United States economic growth slows to 0.7% rate in fourth quarter

The US economy slowed sharply in the fourth quarter of previous year to a 0.7 per cent annual rate, down from 2.0 per cent in the third quarter, the Commerce Department reported Friday. This came a little below consensus expectations of about one percent. “Inventory is going to be a substantial weight on fourth quarter GDP growth, probably shaving 1 percentage point or more off of growth”.

Recent turbulence in financial markets has increased uncertainty regarding future economic conditions, and could hurt business confidence and further slow down investment growth in the beginning of 2016.

Exports fell 2.5% while imports rose 1.1% as the relative strength of the USA economy bolstered the dollar, making US products more expensive overseas and foreign shipments cheaper for American consumers.

Overall, the U.S. economy grew by 2.4% in 2015, and is expected to pick up steam to give a similar growth figure this year.

In the fourth quarter, businesses accumulated US$68.6 billion worth of inventory.

Dennis de Jong, managing director at UFX.com, said: “The outlook was pretty bright for the Federal Reserve when it raised interest rates for the first time in almost a decade in December”.

With gasoline prices around $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. Savings rose to a lofty $739.3 billion from $700.6 billion in the third quarter. Nevertheless, the U.S. Commerce Department’s advance fourth-quarter GDP report, to be released on Friday at 08:30 a.m. could spark a fresh wave of selling on the stock market, which has been roiled by fears of anemic growth in both the United States and China.

The US is expected to be more resilient than most as hiring has remained strong and consumer spending resilient though downside risks remain from export weakness and the shale oil sector’s battle for market share with other major oil producers – especially the OPEC cartel. Spending on mining exploration, wells and shafts dropped at a 38.7 per cent rate after plunging at a 47.0 per cent pace in the third quarter. Corporate spending on equipment fell at a 2.5 percent pace after 9.9 percent.

But while healthy consumer spending propped up the economy in the second and third quarters, consumption slowed somewhat at the close of the year. A price index in the GDP report that strips out food and energy costs increased at a 1.2 per cent rate, slowing from a 1.4 per cent pace in the third quarter.