US fourth-quarter growth disappointing | Business| Economy and finance news from a German perspective | DW | 29.01.2016
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US fourth-quarter growth disappointing

The world's biggest economy slowed sharply in the final quarter of 2015 as businesses reduced inventories and a strong dollar as well as weak global demand weighed on exports.

In the fourth quarter of 2015, US gross domestic product (GDP) increased by 0.7 percent, the Commerce Department said on Friday in a report that showed a further cutback in investment by energy firms grappling with lower oil prices.

It was the second straight quarterly deceleration, and a bit worse than the 0.9 percent rate that analysts had forecast. GDP expansion was 2.0 percent in the third quarter of 2015 and a brisk 3.9 percent 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 fell due to falling oil prices, with the overall net trade deficit proving a larger drag on GDP growth than in previous months.

Consumer spending cools

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a rate of 2.2 percent - a fall from the 3-percent pace notched in the third quarter.

Support for growth came from home building and buying, as well as government spending. Government expenditure in the fourth quarter showed a surge especially in defense-related spending, making a solid contribution to overall growth.

The quarter ended a year that was somewhat disappointing, after early estimates forecast that economic activity might expand by as much as 3.0 percent. In the end, for the full year the economy mustered a 2.4-percent 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.

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 told the news agency AFP.

And Chris Williamson, economist with Markit research group, told the same news agency that recent financial market uncertainty and expectations of higher interest rates could mean that consumers and businesses would "continue to show reluctance to spend."

Stocks rise on rate hopes

Slowing US growth caused American shares to rise on Wall Street Friday as investors' were expecting the US Fed to go slow on future interest rate hikes.

The US central bank raised interest rates in December for the first time since June 2006. While the Fed has not ruled out another rate hike in March, the current GDP decline could force it to wait until June.

US stocks have failed to sustain several rallies in 2016 and are yet to post gains for three days in a row.

"We're likely to settle in at these levels for a short time, at least until more news comes out probably in a month or so," said Terry Sandven, chief equity strategist at Bank Wealth Management in Minneapolis. "Near term, I think it's oil, earnings and technicals that are likely to drive the market," he told the news agency Reuters.

uhe/hg (Reuters, AFP, dpa)

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