United States: Economic growth slows in Q4 although consumer spending remains relatively strong
January 29, 2016
In the fourth quarter, GDP expanded at a seasonally adjusted annualized rate (SAAR) of 0.7%, according to an advance estimate released by the Bureau of Economic Analysis (BEA) on 29 January. The print marked a significant deceleration over the 2.0% growth recorded in the third quarter and slightly undershot market expectations of a 0.9% increase. The deceleration reflects a moderation in private consumption as well a steep slowdown in fixed investment and a collapse in exports as the dollar gained strength against other global currencies. Q4’s disappointing result comes just a few days after the Federal Reserve announced that it was keeping interest rates unchanged as it continues to assess economic developments at home and abroad. The economy is still expected to snap back in the first quarter of this year.
On the domestic side of the economy, private consumption expanded 2.2% in Q4. This was below 3.0% tallied in Q3 and suggests that consumer spending, the motor of the economy, is resilient despite weak growth but not benefitting as much from low energy prices and labor market gains as expected. Meanwhile, non-residential fixed investment slumped from a 2.6% increase in Q3 to a 1.8% decline in Q4, due partly to a pullback from energy firms facing historically low oil prices. Residential fixed investment in Q4expanded a solid 8.2% for the second straight period. Government spending increased just 0.7% in Q4 after having expanded 1.8% in the previous quarter. A large reduction in inventories also dragged on growth.
Exports contracted 2.5% in the fourth quarter as global demand stutters and the U.S. dollar remains strong (Q3: +0.7% quarter-on-quater SAAR) while imports increased 1.1% (Q3: +2.3% qoq SAAR). Consequently, the external sector’s net contribution to overall growth deteriorated from minus 0.3 percentage points in the third quarter to minus 0.5 percentage points in Q4.
In annual terms, the economy expanded 1.8% in the final quarter of the year, which was below the 2.2% increase tallied in Q3. The economy grew 2.4% in the full year 2015, which matched the growth registered in 2014.
Author: Carl Kelly, Economist