U.S. economic growth brakes sharply, rising only 0.7% as strong dollar weighs on exports

WASHINGTON – U.S. economic growth braked sharply within the fourth quarter as businesses increased efforts to lessen an inventory glut and a strong dollar and tepid global demand weighed on exports.

Gross domestic product increased in a 0.7 percent annual rate, the Commerce Department said on Friday, also as lower oil prices continued to undermine investment by energy firms and unseasonably mild weather cut into consumer paying for utilities and apparel.

The growth pace was in line with economists’ expectations and followed a 2 percent rate in the third quarter. The economy grew 2.4 percent in 2015 following a similar expansion in 2014.

But some of the impediments to growth -inventories and mild temperatures – are temporary and also the economy is anticipated to snap during the first quarter. Excluding inventories and trade, the economy grew at a 1.6 percent pace.

Nevertheless, the GDP report could spark a brand new wave of selling on the stock exchange, which has been roiled by fears of anemic development in both Usa and China.

The Federal Reserve on Wednesday acknowledged that growth “slowed late this past year,” but additionally noted that “labor market conditions improved further.” The Fed, the U.S. central bank, raised interest rates in December the very first time since June 2006. Though the Fed has not ruled out another hike in March, financial markets volatility could see that delayed until June.

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SMALL INVENTORY BUILD



In the fourth quarter, businesses accumulated US$68.6 billion price of inventory. While that is down from US$85.5 billion in the third quarter, it was a bit more than economists had expected, suggesting inventories could remain a drag on growth in the first quarter.

The small inventory build subtracted 0.45 percentage point from the first estimate of fourth-quarter GDP growth.

Consumer spending, which accounts for a lot more than two-thirds of U.S. business activities, increased in a 2.2 percent rate. That marked a step-down from the 3 major.0 per cent pace notched in the third quarter.

Unusually mild weather hurt sales of winter apparel in December and undermined demand for heating through the quarter.

With gasoline prices around US$2 per gallon, a tightening labor market gradually lifting wages and house prices boosting household wealth, economists believe the slowdown in consumer spending is going to be short-lived.

The dollar, which has gained 11 percent against the currencies from the United States’ trading partners since last January, likely remained a continue exports, resulting in a trade deficit that subtracted 0.47 percentage point from GDP development in your fourth quarter.

The downturn in energy sector investment put more pressure on business paying for nonresidential structures. Paying for mining exploration, wells and shafts plunged in a 38.7 percent rate after dropping at a 47.0 per cent pace in the third quarter.

Investment in mining exploration, wells and shafts fell 35 percent in 2015, the biggest drop since 1986.

Oil prices have dropped a lot more than 60 per cent since mid-2014, forcing oil field companies for example Schlumberger and Halliburton to slash their capital spending budgets.

Business paying for equipment contracted in a 2.5 per cent rate last quarter after rising in a 9.9 percent pace in the third quarter. Investment in residential construction remained a bright spot, rising at a 8.1 percent rate.

With consumer spending softening, inflation likely retreated within the fourth quarter. A price index within the GDP report that strips out food and energy costs increased at a 1.2 per cent rate, slowing from the 1.4 percent pace within the third quarter.