Politics

Q4 Report: Economic Growth Slows To 2.6 Percent, Consumer Spending Balloons

| by Kathryn Schroeder
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Even with the substantial growth in consumer spending in the final quarter of 2014, U.S. economic growth slowed.

Gross domestic product grew at a 2.6 percent annual rate in the fourth quarter, down from 5 percent in the third quarter, CNBC reports from a GDP snapshot given by the Commerce Department.

The second quarter of 2014 showed a growth rate of 4.6 percent.

Consumer spending was high in the final quarter, with the rate climbing faster than it has in nearly nine years at 4.3 percent.  The increase may be attributed to lower gasoline prices, giving Americans more discretionary spending.

The increase in consumer spending was offset by weakened business investment, trade and government spending.

Business spending on equipment dropped to a 1.9 percent rate, the largest decline since the second quarter of 2009. In the third quarter, the rate for business spending on equipment was at 11 percent. The drop may be attributed to cuts or delays of projects by companies in the oil industry, or simply “payback after two back-to-back quarters of robust gains.”

Government spending fell at a 2.2 percent annual rate in the fourth quarter after a third quarter that saw a 4.4 percent gain.  Trade dropped by 1 percentage point.

Paul Ashworth, chief U.S. economist at Capital Economics, said the fourth quarter slowdown is “nothing to worry about.”

"With the collapse in energy prices increasing households' purchasing power, we expect strong consumption growth to continue driving GDP growth in the first half of this year," Ashworth said.

The economy grew 2.4 percent for all of 2014, compared to 2.2 percent in 2013. The Federal Reserve sees the economy growing at a “solid pace,” an upgraded assessment that will allow for interest rates to rise in 2015.

Economists believe 2015 will post growth above 3 percent, due to employment gains and a continuation of falling gasoline prices that will boost consumer spending, reports The Huffington Post.

"It took us awhile to get here, but I think the economy is finally off and running," said Mark Zandi, chief economist at Moody's Analytics. "We are seeing a number of positive developments. Businesses are hiring aggressively, and the big drop in gas prices means that people have more money to spend on other items."

Sources: CNBC, Huffington Post / Photo Source: Wikimedia Commons