Posted on February 2, 2015 by the XM Investment Research Desk at 2:01 pm GMT
The news that US GDP growth for the fourth quarter came in at a 2.6% annualized pace – less than what economists expected at 3% – was on balance slightly dollar negative. The previous quarter’s growth rate was much higher at 5%; although that level of growth was unsustainable. For the year as a whole, growth came in at 2.4%, a respectable performance and the best since 2010 – particularly given the surprise contraction of the first quarter due to weather and other special factors.
The US economy was powered by an acceleration in consumer spending, which grew at a 4.3% pace against growth of 3.2% the previous quarter. It appears that a recovering labor market combined with the effect of lower energy prices, has boosted consumer sentiment – something that is also evident in consumer sentiment indicators which are hitting multi-year highs. Durable goods purchases were particularly strong, rising by 7.4%.
There were also negative aspects of the GDP report however. Excluding inventory buildups, which boost growth one quarter only to take it back over the next quarters, GDP grew only by 1.8% against expectations of a 3.3% final sales growth. Another worrying point was that investment in equipment actually contracted by 1.9% and business investment overall grew by a fairly subdued 1.9% rate.
Two other negatives were net exports and government spending. As a result of the strong US dollar and buoyant domestic demand, imports surged by nearly 9%, whereas exports were up only 2.8% as demand from economies abroad grew at a weaker pace than the US. This chopped a whole percentage point out of growth. Furthermore, Government Purchases and particularly those of the Federal Government were down significantly, which also affected growth.
Looking forward, economists were looking towards a positive first quarter of 2015, with the consumer again driving the economy forward.
There was a slight selloff of the dollar in response to the data, while there was also selling of US stocks because of slower growth. US Treasury bond yields declined.