US Economic Growth in Fourth Quarter Revised as Strong Consumer Spending Supports
U.S. economic growth during fourth quarter was better than estimates of economic analysts as the GDP increased by 1.4 percent annual rate. Earlier reports had estimated GDP growth of one percent but strong consumer spending in the United States has helped the economy. The Commerce Department released the GDP data for fourth quarter on Friday.
Economists were surprised as the strong consumer spending has been supporting the U.S. economy. While manufacturers might have reduced their inventory levels considering the risk of lower sales and piling up production, the GDP data suggests that consumer spending remained strong across the country.
Earlier this year, the stock markets faced sell-off as investors were worried about faltering growth in the United States and other parts of the world. However, in March, the stock indices managed to recover their losses for year 2016 and closed above the levels witnessed in December 2015.
U.S. consumer spending has remained strong over the last few quarters. Consumers have been saving on their gas bills as oil prices have remained low. Secondly, the strong labor market has kept consumer sentiment upbeat. Over the last few quarters, the labor market has shown strength and that has given support to the U.S. economy in the long run. Consumer spending is a main driving force for the U.S. economy.
Chris Rupkey, chief economist at MUFG Union Bank in New York said, “The consumer is back in the driver’s seat. There is no sign of recession in these data, so this will put a smile on Fed officials’ faces and argues for their policy of gradual interest-rate normalization to continue.”
However, energy sector has been suffering for the last few quarters as the energy prices have remained low. Multi-national companies have also faced drop in their earnings as the U.S. dollar has remained strong compared to other countries. U.S. dollar has gained 10.5 percent in 2015 compared to currencies of main trading partners of the United States.
Economists are now looking at the next Federal Reserve meeting as an important trigger for the stock markets and economy. If the Federal Reserve keeps the rates at current level in the next policy meeting, the real estate sector could continue to outperform for the next quarter.
The economy grew at a 2 percent pace in the third quarter and expanded by 2.4 percent for all of 2015. Consumer spending, which accounts for more than two thirds of U.S. economic activity, rose at a 2.4 percent pace and not the 2 percent reported last month.
Relatively strong consumer spending underscores the economy’s underlying strength and should further allay fears of a recession — concerns that triggered a massive stock-market sell-off early this year. Together with a tightening labor market and rising inflation, that probably keeps the Federal Reserve on a path to gradually raise interest rates this year.
A Seeking Alpha report informed, “For the first two months of 2016, the year-over-year rate of growth in industrial production was -0.7 percent and -1.0 percent. If this correlation continues, one could project the growth rate in the first quarter of 2016 would be below 2.0 percent.”
The report further added, “The near-term peak of industrial production growth came in the fourth quarter of 2014 at 4.5 percent, but registered a decline in each of the following quarters coming in at 3.5 percent in the first quarter of 2015, 1.5 percent in the second quarter, and 1.1 percent in the third quarter. The correlation between these two series is quite high.”
The U.S. stock markets were closed on Friday for Good Friday.
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