Economy expands at 2.2% pace in 4th quarter
For all of 2014, growth was 2.4% from the year before, the most since 2010
Washington
THE US economy expanded at 2.2 per cent annualised pace in the fourth quarter, led by the biggest gain in consumer spending in eight years.
The revised increase in gross domestic product, the value of all goods and services produced, matched the Commerce Department's previous estimate, according to figures issued on Friday in Washington. The report also showed corporate profits dropped in the last three months of the year, capping the worst annual performance since the recession.
The rate of economic growth will prove hard to replicate this quarter as harsh winter weather, a stronger dollar, a port slowdown and a global oil glut translate into disappointing spending on the part of consumers and businesses. Job growth - one of the few economic indicators that charged ahead unabated in the first quarter - will probably help support demand in the world's biggest economy for much of the year.
"The consumer is still going to hold up," said Jacob Oubina, a senior US economist at RBC Capital Markets LLC in New York, which correctly forecast GDP. "As we look towards the middle of the year, you have a consumer that continues to see aggregate income growth."
The median forecast of 83 economists surveyed by Bloomberg called for growth of 2.4 per cent. Projections ranged from 1.8 per cent to 2.7 per cent. This is the final of three estimates for the quarter.
An upward revision to consumer spending and exports was mostly offset by smaller gains in inventories, the report showed.
For all of 2014, the US economy grew 2.4 per cent from the year before, the most since 2010 and following a 2.2 per cent advance in 2013.
Household consumption, which accounts for almost 70 per cent of the economy, was revised up to show a 4.4 per cent gain at an annualised rate in the fourth quarter, the most since the first three months of 2006. It was previously estimated at 4.2 per cent. The update reflected bigger outlays on health care.
For all of 2014, consumer spending rose 2.5 per cent, the most since 2006.
The Commerce Department's report also included data on fourth-quarter corporate profits. Before-tax earnings fell 1.4 per cent after rising 3.1 per cent in the previous three months, depressed by declines among financial institutions and foreign affiliates.
"We continue to see this divergence between a real healthy US domestic backdrop despite a global economy that as we know in the second half of last year was weakening significantly," said Mr Oubina, referring to the drop in profits from overseas.
A 4 per cent gain at an annualised rate in personal income made up for the drop in corporate earnings and helped propel gross domestic income up by 3.1 per cent.
For all of 2014, corporate profits were down 0.8 per cent, the first decrease since 2008. The outlook for 2015 has dimmed with the jump in the dollar.
A stronger currency is more likely to "impact profits this quarter and through this year rather than happening almost in real time", Joseph LaVorgna, chief US economist at Deutsche Bank Securities Inc in New York, said before the report.
Bad weather and the stronger dollar are having an impact this quarter.
Retail sales unexpectedly dropped 0.6 per cent in February, a third consecutive decline, according to figures issued by the Commerce Department this month. Auto dealers, building-material outlets and department stores were among the merchants that suffered through record cold and snow in parts of the North-east and Mid-west.
Construction also has been hurt by the weather, while manufacturing has struggled as the rising dollar restrains exports and the plunge in oil prices limits investment in energy-related industries.
Builders began work in February on the fewest houses in a year, and orders for durable goods such as machinery and electronics sank.
Economists at JPMorgan Chase & Co and Macroeconomic Advisers were among those who lowered their tracking estimates for first quarter GDP after Wednesday's durable goods report. Michael Feroli, JPMorgan's New York-based chief US economist lowered his growth forecast to a 1.5 per cent pace from 2 per cent, while Macroeconomics downgraded its projection to 1.4 per cent from 1.5 per cent.
The Federal Reserve Bank of Atlanta's GDP forecasting model is so far projecting a 0.2 per cent growth rate, which would be the weakest since cold winter weather sent the economy to contract a year ago. The median of 76 economists projected first-quarter growth of 2.2 per cent as of a survey by Bloomberg News published on March 12. Bloomberg
