US economy loses momentum in fourth quarter

Shoppers walk along a connecting path from The Court to The Plaza at the King of Prussia Mall, United States' largest retail shopping space in King of Prussia, Pennsylvania, in this December 6, 2014 file photo. Federal Reserve officials are playing it cool for now, but roughly $2.5 trillion of stock market value wiped out in the past three weeks and a possible consumer pullback could throw the Fed off its course of gradual interest rate hikes. To match Insight USA-FED/WEALTH REUTERS/Mark Makela/Files

WASHINGTON: The US economy slowed sharply in the fourth quarter of last year to a 0.7% pace of growth, due to the oil price crash and the strong dollar’s drag on exports.

Consumer spending slowed somewhat but spending on homes held up in a sign of some tenacity amid a global economic slowdown and market turbulence.

It was the second straight quarterly deceleration, and a bit worse than the 0.9% rate that analysts had forecast.

Gross domestic product expansion was 2.0% in the third quarter of 2015 and a brisk 3.9% in the second.

The slowdown came on the back of slumping business investment in buildings and equipment, related in part to the deep contraction in the oil sector.

Also hitting growth was a drop in exports, linked to the strong dollar and slowing demand abroad.

Imports also fell, helped by the lower cost of imported crude oil, but overall the net trade deficit was a larger drag on GDP growth than in previous months.

Supporting growth was consumer spending on durable goods, which slowed slightly, and services, which was barely changed from the previous quarter.

Also strong was home building and buying, and government spending. Falling federal government spending has been a persistent drag on economic output for several years; in the fourth quarter a surge in especially defense-related spending made a solid contribution to overall growth.

The quarter rounded out a year that was somewhat disappointing, after early estimates forecast that economic activity might expand by as much as 3.0%.

In the end, for the full year the economy mustered a 2.4% expansion, the same as in 2014.

Analysts took the data as a warning that the economy could be at the start of a soft patch. But the growth estimate for the period, the first from the Commerce Department, is subject to often significant revisions as more data comes in.

Chris Low of FTN Financial pointed out that consumption weakened despite cheaper energy costs, a sign that consumers and businesses are not quickly spending their savings from cheaper gasoline.

“All components of private-sector growth are flashing warning signs,” he said.

“The recent increase in financial market uncertainty, and expectations of an upward trend in interest rates in 2016, may mean consumers and businesses will continue to show reluctance to spend,” said economist Chris Williamson of Markit. - AFP