U.S. economy grew at 0.1 percent rate in 4th quarter
WASHINGTON (AP) - The U.S. economy grew at a 0.1 percent annual rate from October through December, the weakest performance in nearly two years. But economists believe a steady housing rebound, stronger hiring and solid spending by consumers and businesses are pushing economic growth higher in the current quarter.
The Commerce Department's second estimate of fourth-quarter growth was only slightly better than its initial estimate that the economy shrank at a rate of 0.1 percent. And it was well below the 3.1 percent growth rate reported for the July-September quarter.
The revision to the gross domestic product was due to higher exports and more business investment. GDP is the broadest measure of the economy's output.
Many economists say temporary factors that held back growth in the fourth quarter are probably fading and growth is likely picking up in the January-March quarter.
Paul Ashworth, chief U.S. economist at Capital Economics, predicts growth could be as high as 2 percent in the current quarter despite higher Social Security taxes, which have reduced take-home pay for most Americans. Alan Levenson, chief economist for T. Rowe Price, said growth could be as high as 2.5 percent.
Ashworth noted that a sharp decline in defense spending and slower business restocking subtracted 2.9 percentage points from growth in the fourth quarter. At the same time, consumer spending and business investment - two key drivers of growth - accelerated at the end of last year.
"We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests," said Ashworth.
The economy could continue to struggle if policymakers in Washington cannot reach agreements over the budget his month, including billions of dollars in spending cuts that are set to begin on Friday. And a spike in gas prices and higher taxes could hold back consumer spending.
Still, a raft of recent reports suggests that many aspects of the economy are improving.
The Labor Department said that the number of Americans seeking unemployment benefits fell 22,000 last week to a seasonally adjusted 344,000. The steep decline comes as hiring has strengthened, providing more income to consumers.
Employers have added an average of 200,000 jobs per month in the past three months. That's up from an average of 150,000 in the previous three months.
More jobs and ultra-low mortgage rates are helping the once-battered housing market recover. New-home sales jumped 16 percent to their highest level in 4 ½ in January.
At the same time, the number of new homes available for sale remains near record lows. That means builders will likely have to start construction on more homes and apartments to keep up with demand. That should create more construction jobs.
Home prices also rose in December compared with the same month a year ago by the most in more than six years. Rising home values also contribute to the housing recovery and the broader economy. They encourage more people to buy before prices rise further. Higher prices also build homeowners' wealth, which can spur more spending and economic growth.
Businesses and consumers are also showing greater confidence despite automatic spending cuts scheduled to take effect on Friday. A measure of consumer confidence rebounded in February after a sharp fall the previous month that likely was a result of the tax increase.
Companies, meanwhile, sharply increased orders in January for a category of long-lasting manufactured goods that reflect their investment plans. That suggests they are confident about their business prospects.
The Commerce Department's second estimate of fourth-quarter growth was only slightly better than its initial estimate that the economy shrank at a rate of 0.1 percent. And it was well below the 3.1 percent growth rate reported for the July-September quarter.
The revision to the gross domestic product was due to higher exports and more business investment. GDP is the broadest measure of the economy's output.
Many economists say temporary factors that held back growth in the fourth quarter are probably fading and growth is likely picking up in the January-March quarter.
Paul Ashworth, chief U.S. economist at Capital Economics, predicts growth could be as high as 2 percent in the current quarter despite higher Social Security taxes, which have reduced take-home pay for most Americans. Alan Levenson, chief economist for T. Rowe Price, said growth could be as high as 2.5 percent.
Ashworth noted that a sharp decline in defense spending and slower business restocking subtracted 2.9 percentage points from growth in the fourth quarter. At the same time, consumer spending and business investment - two key drivers of growth - accelerated at the end of last year.
"We still believe that the fourth-quarter GDP figures were a lot better than the headline stagnation suggests," said Ashworth.
The economy could continue to struggle if policymakers in Washington cannot reach agreements over the budget his month, including billions of dollars in spending cuts that are set to begin on Friday. And a spike in gas prices and higher taxes could hold back consumer spending.
Still, a raft of recent reports suggests that many aspects of the economy are improving.
The Labor Department said that the number of Americans seeking unemployment benefits fell 22,000 last week to a seasonally adjusted 344,000. The steep decline comes as hiring has strengthened, providing more income to consumers.
Employers have added an average of 200,000 jobs per month in the past three months. That's up from an average of 150,000 in the previous three months.
More jobs and ultra-low mortgage rates are helping the once-battered housing market recover. New-home sales jumped 16 percent to their highest level in 4 ½ in January.
At the same time, the number of new homes available for sale remains near record lows. That means builders will likely have to start construction on more homes and apartments to keep up with demand. That should create more construction jobs.
Home prices also rose in December compared with the same month a year ago by the most in more than six years. Rising home values also contribute to the housing recovery and the broader economy. They encourage more people to buy before prices rise further. Higher prices also build homeowners' wealth, which can spur more spending and economic growth.
Businesses and consumers are also showing greater confidence despite automatic spending cuts scheduled to take effect on Friday. A measure of consumer confidence rebounded in February after a sharp fall the previous month that likely was a result of the tax increase.
Companies, meanwhile, sharply increased orders in January for a category of long-lasting manufactured goods that reflect their investment plans. That suggests they are confident about their business prospects.
Yeah but wall street is booming.lol Someones making money and it ain't you and me. The time of US growth is coming to a close. There's only so much you can do when all your countries natural resources are disappearing at a staggering rate. The BRICS nations will continue to have growth for a while but the US is the worlds largest consummer and if we don't have the money to waste on all these useless trinkets everyone will start to collapse.
Remember that 4-letter word we used to talk so much about until Obama got re-elected...you know, the one that spells JOBS?
Funny how Obama has diverted all the media attention and talking points to gun control, fear mongering, appointing anti-American people to his cabinet, and drones.What ever happened to the ECONOMY improvements you promised Oblamer?
@Steve Jameson. Actually when he took office the first time he indicated it would be a long slow recovery over several years.
What's amazing is how we choose what we want to validate our own belief system
@sunnysandiego We never recovered from the collapse of 2001 and then got hit again in 2008. It always takes a minimum of 10 years to come back from a recession and usually 20 years to hit the break even point. So were looking at at least 2030 before things start to recover, if they recover at all. If a country wants to see how to do it right they need look no further than Iceland.
@Blindman @sunnysandiego 2030? Guess I will enjoy the recovery from costa rica!