The US economy struggled to grow in the October-to-December quarter as consumer spending, business investment and exports slowed. Yet despite global weakness, and shrunken oil and stock prices, many economists expect growth to accelerate on the strength of healthy job gains.
The economy grew at an annual rate of just 0.7 percent last quarter, less than half the 2 percent growth rate in the July-to-September period, the government said on Friday.
It was the worst showing since a severe winter slowed the economy to a 0.6 percent annual growth rate in last year’s first quarter.
“The weak growth is temporary,” IHS Global Insight chief economist Nariman Behravesh said. “This is not an early warning of something worse.”
Behravesh said two of the key negative factors last quarter — an effort by companies to pare an overhang of unsold goods and investment cutbacks by oil companies facing much lower energy prices — would likely diminish early this year. That would pave the way for decent annual growth of about 2.5 percent in the first half of this year, Behravesh said.
Capital Economics chief economist Paul Ashworth said he thinks that GDP growth would rebound to an annual rate between 2.5 percent and 3 percent in the first six months of this year, as further solid job growth fuels additional consumer spending. Consumer spending accounts for about 70 percent of economic activity.
Much of last quarter’s weakness reflected a slowdown in consumer spending, which grew at a 2.2 percent annual rate, compared with a 3 percent rate the previous quarter.
Exports were also a source of weakness last quarter due, in part, to a stronger US dollar. Persistent sluggishness in such key export markets as China and Europe hurt, too.
An additional drag came from cutbacks in business investment spending, which fell at a 1.8 percent annual rate, with spending on structures down 5.3 percent. That reflected a 38.7 percent plunge in spending in the oil and gas industry in response to the plunge in oil prices.
Besides pulling back on investment, businesses cut spending on stockpiles to try to pare unwanted inventories, while government spending slowed to growth of just 0.7 percent.
For all of last year, the US economy grew 2.4 percent, matching the growth in 2014. Both years improved on 2013. Still, last year’s growth rate extended the economy’s pattern of subpar expansion since the Great Recession officially ended in June 2009.
For this year, economists have forecast another year of modest growth of about 2 percent to 2.5 percent. At the same time, they have nudged up the likelihood of another recession, given the stock market plunge that began the year, sharply diminished energy prices and China’s struggling economy, the world’s second-largest.
A possible recession beginning this year is put at a still-low 20 percent. This week, the US Federal Reserve issued a cautious assessment of the economy. The Fed left interest rates unchanged after having raised its benchmark short-term rate last month from record lows.
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