Economic Growth in 2014 Fastest Since 2010 Scott Olson/Getty Images

Economic Growth in 2014 Fastest Since 2010

While the halving of fuel prices clearly gave American consumers the power to spend more at the end of the year, businesses slowed investment  and the government cut back on spending.

WASHINGTON - The U.S. economy had its best year since 2010 last year, outpacing all of the other major developed countries as consumer confidence picked up, helped by sinking oil prices.

But a slowdown in the fourth quarter held back the annual growth figure, baring some of the persistent challenges -- like the soaring dollar -- to locking the world's largest economy into higher gear.

While the halving of fuel prices clearly gave American 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 Commerce Department reported Friday that U.S. gross domestic product grew at an annual 2.4% pace last year, up from 2.2% in 2013, as the United States distanced itself from the sagging economies of Europe and Japan.

The firming recovery from the devastating 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.

By comparison, Japan and the eurozone continue to battle with recessionary pressures; China -- the other key motor of global growth -- is slowing more than expected; and other emerging economies are also struggling with slumping activity, partly because of the crash in commodity prices.

That has put the U.S. on a divergent course with the others: while their central banks are implementing measures to stimulate demand and head off deflation, the U.S. Federal Reserve is moving to tighten monetary policy and raise interest rates in the coming months.

Strong Dollar a Challenge

Even so, the Commerce Department's fourth-quarter data showed the United States is not completely in the clear.

Following a bristling 5.0% pace of expansion in the third quarter, GDP grew at a 2.6% rate in the October-December period, slower than the 3.2% expected by economists.

On the positive side, the plummet in oil prices clearly put more money in consumers' pocketbooks as they had to spend much less on gasoline and other fuels.

The result was that consumer spending on other goods and especially services rose at a 4.3% annual pace in the quarter, compared with 3.2% in the previous period.

The slowdown "seemed overdue after growth rates went a bit ahead of themselves," said Harm Bandholz, chief U.S. economist at UniCredit.

On the other hand, businesses pulled back in the October-December period and government spending contracted, especially on defense.

Moreover, a rise in imports alongside slower exports pulled down the final GDP figure, likely in part the result of the strong dollar and weakness in economies elsewhere.

The dollar has risen about 15% against a basket of major currencies in the past year, making U.S. exports more expensive for other buyers, but imports more of a bargain for American consumers.

The different trends underpinned analysts' diverging views on whether activity would accelerate in the first half of this year, especially given the economic doldrums elsewhere in the world.

Chris Low of FTN Financial highlighted the offsetting impacts of low oil prices and the firmer greenback.

Government spending once again served as a drag on growth, reducing real GDP in the fourth quarter by 0.40 percentage points. This stemmed primarily from lower federal defense spending, which had increased in the third quarter on end-of-fiscal-year expenditures." - NAM Chief Economist Chad Moutray

"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," he said.

Dean Baker of the Center for Economic and Policy Research in Washington said there was no surprise in the ebb of GDP in recent months.

"The slowdown in the fourth quarter was predictable as third quarter growth was driven in part by a 16.0 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." 

Wall Street stocks fell after the report, the S&P 500 losing nearly 1% and the Dow Jones Industrial Average 0.9%. 

The dollar was little-changed, rising to $1.1290 per euro, and slipping to 117.33 yen.

Copyright Agence France-Presse, 2015

 

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