Economic growth in the U.S. slowed to 2.2% in the fourth quarter as previously reported, and was not revised up to 2.4% as many economists predicted based on Q3's huge 5% gain.
For 2014 as a whole, real Gross Domestic Product increased 2.4% from 2.2% in 2013, according to the latest report from the Commerce Department. TD Bank Group economist Thomas Feltmate says it's what he expected, "There were no surprises in this report, with the headline number remaining unchanged relative to the BEA's second fourth quarter estimate of real GDP. Having said that, our current tracking has real GDP growth slowing to 1.7% (annualized) in the first quarter of this year, but nonetheless still averaging 3.0% for the year as a whole - the strongest annual pace in a decade."
Manufacturers struggled in Q4 with the strong dollar pressuring exports. The dollar gained 7.8% in the second half of 2014 against the currencies of main trading partners. That pressure has continued through the first three months of 2015, but the summer months could bring some change.
Inventories were down in Q4 0.10% and restocking has been slow, something Feltmate says he expects to continue, "Business investment, particularly in the oil and gas sector, will struggle over the first half of this year, as the impact of lower oil prices starts to filter through to the capital investment side. Moreover, weak global demand alongside a heighten dollar will help to depress export activity, while the latter is likely to support domestic imports. Overall, we expect net exports to be a small drag on GDP growth for 2015"
Consumer spending, the largest component of economic activity, was revised up for the fourth quarter to 4.4% from 4.2%. The fastest rate of growth since 2006. That number has slowed to start 2015, but Feltmate says it can be explained, "a large portion of the weakness can be attributed to both bad weather and price effects stemming from lower gasoline prices. This has come at the a time when we have also started to see some rotation away from goods-related consumption towards more service-based consumption - a component not well captured in retail sales data, but by far the largest contributor to spending activity. With the labor market continuing to strengthen, personal income rising at its fastest pace in over two-years and interest rates not far from 2013 levels, this is not the time to rule the American consumer out."
Corporate profits fell 1.4% quarter-over-quarter, erasing almost half of Q3’s 3.1% gain. As a whole, 2014 saw corporate profits fall 1.8% after 2013’s jump of 4.2%.
Follow this link to see the complete fourth quarter GDP report from the Commerce Department's Bureau of Economic Analysis.