U.S. economy cools in fourth quarter, but consumer spending shines

Fri Jan 30, 2015 12:37pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. economic growth slowed sharply in the fourth quarter as weak business spending and a wider trade deficit offset the fastest pace of consumer spending since 2006.

The slowdown followed two back-to-back quarters of bullish growth and is likely to be short-lived given the enormous tailwind from lower gasoline prices. Other data on Friday showed consumer sentiment jumped to an 11-year high in January.

"We look for strong domestic consumption to continue supporting growth momentum in the coming quarters even as investment suffers due to falling oil prices," said Gennadiy Goldberg, an economist at TD Securities in New York.

Gross domestic product expanded at a 2.6 percent annual pace after the third quarter's 5 percent rate, the Commerce Department said in its first snapshot of fourth-quarter GDP.

A gauge of underlying demand, which excludes trade, inventories and government, increased at a 3.9 percent pace. That compared to the third quarter's 4.1 percent rate. Analysts said the data indicated domestic fundamentals were strong enough to cushion the blow on growth from weakening overseas economies.

"The strength of domestic demand will more than offset the headwinds from abroad, including a slower pace of export growth as a result of the strengthening U.S. dollar," said Sam Bullard, a senior economist at Wells Fargo.

"Sharply lower oil prices do present downside risk to business investment, but accruing benefits to the consumer in the form of lower gasoline prices should increasingly offset the near-term drag."

First-quarter growth estimates are currently converging around a 2.5 percent pace, with an acceleration anticipated for the rest of 2015. Economists had expected GDP to expand at a 3 percent rate in the fourth quarter.   Continued...

 
A man gets gasoline at a BP station in St. Louis, Missouri January 14, 2015. REUTERS/Kate Munsch