WASHINGTON – U.S. economic growth braked sharply within the fourth quarter as businesses increased efforts to lessen a listing glut and a strong dollar and tepid global demand weighed on exports.
Gross domestic product increased at a 0.7 per cent annual rate, the Commerce Department said on Friday, also as lower oil prices continued to undermine investment by energy firms and unseasonably mild weather reduce consumer spending on utilities and apparel.
The growth pace was in line with economists’ expectations and followed a 2 per cent rate in the third quarter. The economy grew 2.4 per cent in 2015 after a similar expansion in 2014.
But some of the impediments to growth -inventories and mild temperatures – are temporary and also the economy is anticipated to snap during the first quarter. Excluding inventories and trade, the economy grew in a 1.6 percent pace.
Nevertheless, the GDP report could spark a fresh wave of selling around the stock exchange, that has been roiled by fears of anemic development in both Usa and China.
The Fed on Wednesday acknowledged that growth “slowed late last year,” but also noted that “labor market conditions improved further.” The Fed, the U.S. central bank, raised interest rates in December the very first time since June 2006. Although the Fed hasn’t eliminated another hike in March, markets volatility could see that delayed until June.
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SMALL INVENTORY BUILD
In the fourth quarter, businesses accumulated US$68.6 billion worth of inventory. That can be a is down from US$85.5 billion in the third quarter, it had been a little more than economists had expected, suggesting inventories could remain a continue growth in the first quarter.
The small inventory build subtracted 0.45 percentage point in the first estimate of fourth-quarter GDP growth.
Consumer spending, which makes up about a lot more than two-thirds of U.S. business activities, increased in a 2.2 percent rate. That marked a step-down from the 3.0 per cent pace notched in the third quarter.
Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating with the quarter.
With gasoline prices around US$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.
The dollar, that has gained 11 percent from the currencies from the United States’ trading partners since last January, likely remained a drag on exports, resulting in a trade deficit that subtracted 0.47 percentage point from GDP development in your fourth quarter.
The downturn in energy sector investment put more pressure on business spending on nonresidential structures. Paying for mining exploration, wells and shafts plunged at a 38.7 percent rate after dropping at a 47.0 percent pace within the third quarter.
Investment in mining exploration, wells and shafts fell 35 percent in 2015, the biggest drop since 1986.
Oil prices have dropped more than 60 per cent since mid-2014, forcing oil field companies for example Schlumberger and Halliburton to slash their capital spending budgets.
Business spending on equipment contracted at a 2.5 percent rate last quarter after rising at a 9.9 percent pace in the third quarter. Purchase of residential construction remained a bright spot, rising at a 8.1 per cent rate.
With consumer spending softening, inflation likely retreated within the fourth quarter. A cost index in the GDP report that strips out food and energy costs increased in a 1.2 percent rate, slowing from the 1.4 per cent pace in the third quarter.
