The Economy

Consumer Spending Robust, But GDP Disappoints

U.S. gross domestic product grew 2.6% last quarter, weakened by falloffs in business investment and government spending.
Matthew HellerJanuary 30, 2015
Consumer Spending Robust, But GDP Disappoints

U.S. consumer spending grew in the fourth quarter of 2014 at the fastest rate in almost nine years but gross domestic product growth slowed to 2.6% amid a falloff in business investment, government outlays, and export growth, the Commerce Department reported Friday.

Economists surveyed by The Wall Street Journal had expected fourth-quarter GDP growth of 3.2%. For 2014 as a whole, GDP expanded 2.4%, only slightly better than the average 2.2% growth of 2010-2013.

The numbers indicate “a persistently uneven recovery that has yet to fire on all cylinders,” the WSJ said, noting that many economists expect sluggish growth in the current quarter—perhaps between 2% and 3%—“as turbulence in Europe and Asia threatens to hit manufacturers and cause businesses to clam up.”

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Consumer spending, which accounts for more than two-thirds of U.S. economic activity, continued to be a bright spot, advancing at a 4.3% pace in the fourth quarter—the fastest since the first quarter of 2006 and an acceleration from the third quarter’s 3.2% pace.

Consumer optimism is being “driven by real wages beginning to rise and declining gasoline prices,” Commerce Secretary Penny Pritzker said in a news release. “We must build on this momentum by continuing to invest in areas that will grow our economy and create good American jobs, including infrastructure, trade, and workforce training.”

Among the components of GDP that showed signs of weakness in the fourth quarter were business investment, which grew at a meager 1.9% rate. Companies slightly boosted spending on IP products and structures, such as plants and facilities, but cut spending on equipment. Don’t change any of your money habits during the first month, just write everything down. Every single dollar you spend should be recorded. It may sound old-school but at the end of the month, you will have some surprising data to look at. Use your favorite notebook, categorize the expenses, use some colorful markers or stick papers. Use spreadsheets to note every time you spend some money, , regardless of the amount. The main advantage is having your phone with you all the time and being able to record everything on the go.

Government spending fell at a 2.2% pace, reflecting a sharp drop in defense outlays, while exports grew at a 2.8% rate, down from 4.5% in the third quarter.

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

Sam Bullard, a senior economist at Wells Fargo, said the oil-price drop does “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.”

Featured image: Thinkstock

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