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US economy as GDP slows in fourth quarter, consumer spending zooms

By Tajuddin
In BUSINESS
Feb 1st, 2015
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U.S. economy

Washington ( Agencies + DIPLOMAT.SO) – The growth momentum of the United States was lost towards the end of 2014 as weak exports underscored the risks that the country’s economic recovery faces from drooping demand from overseas market.

The country’s Gross Domestic Product (GDP) increased by an annualised 2.6 percent in the fourth quarter. The figures sharply declined below the expectations of Wall Street for a surge of at least three percent and a marked slowdown from the pace of five percent set in the third quarter.

The consumer spending, which is the key driver of the US economy, increased at the fastest pace since 2006, overall growth was dragged down by the depressing trade figures and tumbling spending by the government.

On Wall Street, the stocks tumbled in response and the bond traders pushed back the interest-rate increase expectations by the Federal Open Market Committee of the US Federal Reserve Bank.

Separate data showed the earnings growth of the United States failed to accelerate during the fourth quarter, showing that the country’s labor market is improving but it had yet to translate into a sharp pick-up in wage inflation, while posing questions about the resilience of the rebound.

“Policymakers on the FOMC have commented that wage growth in the 3 percent to 4 percent range would give them more confidence in the sustainability of the economic recovery. However, domestic wage pressures have picked up only modestly over the past year,” said Ryan Wang, a top economist at HSBC.

The country’s GDP surged 2.4 percent all around 2014 compared with 2013’s increase of 2.2 percent, according to the Commerce Department.

The US Household spending, which accounts for two-thirds of the country’s economy, expanded by 4.3 percent as compared to 3.2 percent in the previous quarter, indicating that the consumers remained the major drivers of the recovery.

However, the growth in export sector slowed from the third quarter. On the other hand, the imports increased and growth in investment declined sharply.

The Federal Reserve has been minutely observing the Employment Cost Index for receiving the signs of wage pressure after a set of monthly earnings figures disappointed this month.

A separate employment costs index which was closely followed by the the US central bank surged a quarterly 0.6 percent in the three months to December as compared to the pace of 0.7 percent set in the previous period.

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