The Economy

U.S. Economic Growth Slows to 0.7% in Q4

The dip in GDP may not signal a long-term slowdown because some impediments to growth in Q4, including inventories, were only temporary.
Matthew HellerJanuary 29, 2016

The U.S. economy showed sluggish growth in the fourth quarter but the dip may not necessarily foreshadow a long-term slowdown.

Gross domestic product increased at a 0.7% annual rate, the Commerce Department said on Friday, just below the 0.8% rate economists had expected. The economy had advanced 2% in the third quarter and 3.9% in the second quarter after contracting 0.2% in the first quarter.

For 2015 as a whole, GDP expanded 2.4%, the same as in 2014 and a little better than the 2.1% average since 2010, the first full year after the recession.

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Friday’s GDP numbers showed inventory investment, trade and business spending were all drags on the economy during the fourth quarter. As Reuters reports, businesses have been stepping up efforts to reduce inventory glut and a strong dollar and tepid global demand have weighed on exports.

Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter.

“What is less clear is whether the fourth quarter was another dip that will be followed by a rebound — as has happened several times since the recession ended in mid-2009 — or whether it signals a more persistent slowdown,” the Wall Street Journal said.

Reuters noted that some of the impediments to growth, including inventories and mild temperatures, are temporary and the economy is expected to snap back in the first quarter. Excluding inventories and trade, the economy grew at a 1.6% pace in the fourth quarter.

“Inventory figures can be volatile and could reverse in the early part of 2016,” the WSJ said, adding that business investment could be more of a concern. Nonresidential fixed investment fell 1.8% in the fourth quarter as companies trimmed outlays on structures and equipment.

In addition, spending in the energy industry tumbled 35% during all of 2015, the sharpest drop in nearly three decades, amid low commodity prices.

Personal consumption, which accounts for more than two-thirds of economic output, rose 2.2% in the fourth quarter, down from 3% in the third quarter.