US Fourth Quarter GDP Indicates a Slower Pace of Growth

by on February 28, 2014 2:19 pm BST

The US economy expanded only 2.4 percent in the fourth quarter, falling short of the 3.2 percent preliminary data report. Economists did revise forecasts to a 2.5 percent general consensus heading into the report. The gross domestic product data indicates that growth lost momentum heading into 2014.

Household spending did increase 2.6 percent, but it came in lower than the 3.3 percent expectations. Businesses are still seeing weakness in consumer spending and confidence. “We are in the midst of a turbulent period –retailers are wrestling with challenged consumers who remain under pressure,” said Denise Morrison, CEO of Campbell Soup. Co., which seen a hit in sales. Business investment was higher quarter-over-quarter with spending on new equipment increasing 10.6 percent at an annualized rate. Purchases of intellectual property increased by eight percent, the largest rate in six years.

Government cutbacks of 5.6 percent hit GDP figures hard, subtracting one percent point from overall growth. Spending by federal agencies declined by 12.8 percent.

Inflation, ex-food and energy, increased slightly from 1.1 percent to 1.3 percent, but still remains well below the Federal Reserve’s two percent target.

The housing sectors cooled off considerably with housing starts dropping 16 percent last year, an annualized rate of 880K. Future project permits seen a modest drop. However, most of the weakness was passed off to cold weather. ““Certainly, in the most recent quarter, weather conditions in most states across the country had an adverse impact on sales,”  said Larry Sorsby, CEO at Red Bank. However, the largest sign of sales weakness was in the West region and was not hit with the polar vortex seen in the North- and Southeast.

Growth has been a struggle. In 2012, growth expanded at 2.8 percent, while last year seen a small expansion of 1.9 percent. Many economists and market participants believe 2014 is the year where growth explodes, but it just might implode if the trend continues.

Equities seem to be shrugging off the sub-par growth, and the US dollar is taking a beating since the London trading session. The EURUSD is above the 1.38 mark.