GDP Grows 2.2%, Missing Expectations
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The United States saw GDP growth of 2.2% in the fourth quarter of 2014, below expectations of 2.4% growth in a sign that the country’s economic recovery is stalling.
The Commerce Department reported that the second estimate for fourth quarter growth was 2.2%, driven by “positive contributions” from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment. Imports also rose in the fourth quarter.
The United States saw GDP growth of 2.2% in the fourth quarter of 2014, below expectations of 2.4% growth in a sign that the country’s economic recovery is stalling.
The Commerce Department reported that the second estimate for fourth quarter growth was 2.2%, driven by “positive contributions” from personal consumption expenditures (PCE), nonresidential fixed investment, exports, state and local government spending, private inventory investment, and residential fixed investment. Imports also rose in the fourth quarter.
The largest headwinds highlighted by the report was falling Federal spending, a deceleration in fixed investments, and a decline in the demand for exports, all of which were contributing to the weakening GDP.
The rise in imports was the primary contributor to a deceleration in real GDP growth, exacerbated by weak export demand. Many economists have highlighted the rising strength of the dollar as a headwind for economic growth, as it makes U.S. exports less competitive to European and Asian markets, where currencies have been falling quickly.
Consumer Spending Growth
Despite the lackluster headline number, consumer spending beat expectations, as PCE rose 4.2% in the fourth quarter, an acceleration from a 3.2% rise in the third quarter.
The strength in personal spending was due in part to falling unemployment, as incomes have grown below the rate of inflation. However, some economists believe PCE may began to improve in the fourth quarter as a result of cheaper oil, which gave consumers more confidence in their purchasing power and helped them spend more on discretionary items.
Others argue that savings rates and other indicators suggest this did not happen, and the rise in PCE is more attributable to falling unemployment and a growing sense of income security in the country.
Low Growth, Low Orders
Earlier this week, both the Federal Reserve and the Commerce Department independently saw low growth in the U.S. as overall demand weakened throughout the country.
In a study released Tuesday, the Chicago Federal Reserve saw growth falling by 10% on a month-over-month basis, the third month of economic decline in four months as employment stalled. The Fed reported 96,000 jobs were gained in February, a steep decline from the 759,000 jobs gained in January.
Personal consumption also fell, including a decline in new housing starts, indicating that the housing recovery is not sustaining itself. A separate study from the National Association of Realtors noted that total existing home sales growth fell 1.2 percentage points from January, despite expectations of accelerating growth.
In a study by the Commerce Department, durable goods sales fell in February, an indication that manufacturing is falling in the country. The report noted a large fall in transport equipment orders, which contributed to the 1.4% fall in durable goods orders. Analysts had expected a 0.2% increase during the month. New orders also fell 1.4% on a month-over-month basis in February.
