US economic growth slows to 2.2 per cent in fourth quarter

Shoppers at a Walmart store on Feb 19, 2015 in Miami, Florida. The US economy cooled more than previously estimated in the fourth quarter but remained on a moderate growth track supported by strong consumer spending, according to government
Shoppers at a Walmart store on Feb 19, 2015 in Miami, Florida. The US economy cooled more than previously estimated in the fourth quarter but remained on a moderate growth track supported by strong consumer spending, according to government data released Friday. -- PHOTO: AFP

WASHINGTON (AFP) - The US economy cooled more than previously estimated in the fourth quarter but remained on a moderate growth track supported by strong consumer spending, according to government data released Friday.

Gross domestic product, the broad measure of the economy's output of goods and services, grew at a 2.2 per cent pace in the final quarter last year, the Commerce Department said, shaving its 2.6 per cent previous estimate.

The sharp downward revision was slightly better than the consensus estimate of 2.1 per cent as the world's largest economy slowed from the third quarter's blistering 5 per cent pace.

"The US economy is on a roll. Despite growth slowing somewhat more than originally reported in the fourth quarter, GDP is expanding at a 3 per cent pace, which is producing three million jobs per year, an extraordinary number and the strongest growth since the apex of the technology boom 15 years ago," said Scott Hoyt of Moody's Analytics.

Chris Williamson of Markit said the slowdown "is unlikely to worry Fed policymakers, however, who are likely to 'keep calm and carry on' with contemplating an initial rate hike in the summer, possibly as early as June".

Based on more complete data, the modest fourth-quarter growth mainly reflected a smaller increase in business inventories and a massive 10.1 per cent surge in imports, subtracting from GDP, the Commerce Department said.

Consumer spending was the main driver of growth, rising 4.2 per cent in the holiday-shopping season quarter, slightly lower than the previous estimate but still the largest increase in four years.

The spending, which accounts for about 70 per cent of US economic activity, contributed about 2.8 percentage points to fourth-quarter growth, the largest share in nearly 10 years.

Markit's Williamson said the far smaller than previously estimated inventory increase was thought to be partly due to West Coast port strikes, which has slowed cargo traffic affecting about half the country's trade. The strike ended Saturday.

"The weaker stock build-up late last year bodes well for first-quarter growth," he added.

Despite falling energy prices that could boost consumer spending, the weakness of the global economy and the dollar's strength weighed on the country's trade balance. Exports rose only 3.2 per cent in the fourth quarter, after a 4.5 per cent gain in the third and an 11.1 per cent jump in the second.

Inflation remained tame, well below the Federal Reserve's 2 per cent inflation target. The personal consumption expenditures price index, excluding food and energy prices, the Fed's preferred inflation measure, increased 1.1 per cent.

Last year, the US economy grew 2.4 per cent, its fastest clip in four years, accelerating from a 2.2 per cent pace in 2013.

The expansion has led the Fed to plan this year to raise near-zero interest rates, where they have been pegged for more than six years to support the recovery. Fed chair Janet Yellen, in congressional testimony this week, prepared the ground for a hike as early as mid-year.

Sal Guatieri, an economist at BMO Capital Markets, said the trend over the past six quarters, of an average annual growth of 2.9 per cent, marked an important upward shift from the 2.1 per cent growth in the first four years of the recovery from the Great Recession that ended in mid-2009.

"We look for 2.3 per cent growth in Q1 and near 3 per cent growth for the rest of the year, powered by more financially-fit consumers, but also supported by solid growth in business spending (outside the oil patch)," Guatieri said in a research note.