The US economy last year grew at its fastest pace in four years, outpacing all of the other major developed countries as consumers gained confidence helped by sinking oil prices.
However, a slowdown in the fourth quarter bared some of the persistent challenges — like the strong US dollar — to locking the world’s largest economy into higher gear.
While the halving of fuel prices clearly gave US consumers the power to spend more at the end of the year, businesses slowed investment and the government cut back on spending, especially for defense, dragging down momentum.
The US Department of Commerce reported on Friday that US GDP grew at an annual 2.4 percent pace last year, up from 2.2 percent in 2013, as the US distanced itself from the sagging economies of Europe and Japan.
The firming recovery from the Great Recession of 2008-2009 was marked by improved consumer confidence, the best year of job creation since 1999, and a surge in business profits.
Even so, the Department of Commerce’s first estimate of fourth-quarter activity showed the US is not completely in the clear.
Following a bristling 5 percent pace of expansion in the third quarter, GDP grew at a 2.6 percent rate in the October-to-December period, slower than the 3.2 percent expected by economists.
On the positive side, consumer spending accelerated as shoppers took advantage of the savings on cheaper gasoline to spend elsewhere.
On the other hand, businesses — likely including companies in industries related to petroleum — pulled back in the October-to-December period and government spending contracted, especially on defense.
Moreover, the US dollar, which has gained about 15 percent against a basket of currencies over the past year, likely spurred a pickup in imports and held back exports, a negative for GDP growth.
“There is a clear dichotomy between consumers, benefiting from cheap gas and a strong dollar, and businesses, suffering from cheap oil and the strong dollar,” FTN Financial’s Chris Low said.
Washington-based Center for Economic and Policy Research’s Dean Baker called the slowdown predictable.
“Third-quarter growth was driven in part by a 16 percent jump in military spending. Military spending is highly erratic and sharp swings are usually reversed,” he said.
On the other hand, he added, “Trade was a major drag on fourth-quarter growth and will continue to be if the dollar stays high.”
Deutsche Bank economist Joseph LaVorgna said in a client note that the opposing forces will persist in moderating, but not stifling, growth. He pointed out that there were no new flags that would push the US Federal Reserve to accelerate plans for increasing interest rates, expected sometime around mid-year.
The GDP data showed inflation tame, and a separate report on employee compensation showed no wage pressures.
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