US economy grew at moderate 2.2 per cent in fourth quarter, slower than previously believed
Posted Feb 27, 2015 6:42 am.
This article is more than 5 years old.
WASHINGTON – The U.S. economy slowed more sharply in the final three months of the year than previously believed, reflecting weaker business and a bigger trade deficit.
The Commerce Department said Friday that the economy as measured by the gross domestic product grew at an annual rate of 2.2 per cent in the October-December quarter, less than the 2.6 per cent first estimated last month. It marked a major slowdown from the third quarter, which had been the strongest growth in 11 years.
Economists remain optimistic that the slowdown will be only temporary. In fact, many forecast that growth will accelerate to above 3 per cent in 2015, which would give the country the strongest economic growth in a decade.
Many analysts believe the year will start slowly, in part reflecting the disruptions caused by a rough winter. However, it’s unlikely to be as bad as the first quarter of 2014, when heavy snow and cold contributed to a 2.1 per cent plunge in growth in the first quarter of 2014.
That big drop was followed by sizzling growth rates of 4.6 per cent in the second quarter and 5 per cent in the third quarter.
Analysts are looking for less of a roller-coaster ride this year. JPMorgan economists say growth will come in around 2.5 per cent in the current quarter and then hover between 2.5 per cent to 3 per cent for the rest of the year. They are forecasting growth of 3.1 per cent for the entire year, a significant improvement from the 2.4 per cent growth seen in 2014.
If the forecast proves accurate, it would be the best GDP performance since the economy grew by 3.3 per cent in 2005, two years before the beginning of worst economic downturn the country has experienced since the 1930s.
Joel Naroff, chief economist at Naroff Economic Advisers, is even more optimistic. He’s forecasting economic growth of 3.5 per cent this year.
Naroff and other economists believe the key to the economy shifting into a higher gear will be further improvements in the labour market, when stronger job gains leading to rising wage gains.
“I see 2015 as a really good year for consumer spending because of the wage gains,” Naroff said.
Even though the recession ended nearly six years ago, wage growth has been weak as businesses were able to pay less with so many unemployed looking for jobs.
Several large companies have already signalled a willingness to pay more to retain workers. Retailers like TJX and The Gap, as well as the health insurer Aetna.
News last week that Wal-Mart, the nation’s largest private employer, would also increase its minimum pay could be a sign that a tighter labour market are finally leading to increased wages, some analysts believe.
The unemployment has fallen to 5.7 per cent.
Fed Chair Janet Yellen, testifying to Congress this week, listed stronger wage growth as one of the elements the central bank is looking for before deciding to start raising interest rates. She said as long as wage gains remained weak and inflation low, the Fed was prepared to remain “patient” in moving to raise rates.
Many private economists believe the Fed’s first move to increase its key rate, which has been near a record low of zero for six years, will not come until June at the earliest.
