US economy set to strengthen on job increases after weak Q4
Print Edition
THE US economy struggled to grow in the October-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-September period, the government said on Friday. It was the worst showing since a severe winter slowed the economy, as measured by the gross domestic product, to a 0.6 percent annual growth rate in last year’s first quarter.
Though the slowdown late last year could renew doubts about the durability of the six-year-old economic expansion, most analysts said they expected the slump to be short-lived.
“The weak growth is temporary,” said Nariman Behravesh, chief economist at IHS Global Insight. “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 around 2.5 percent in the first half of 2016, Behravesh said.
Paul Ashworth, chief economist at Capital Economics, said he thinks GDP growth will rebound to an annual rate between 2.5 percent and 3 percent in the first six months of 2016 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. Analysts said part of that weakness likely reflected a warmer-than-normal December, which cut spending on winter clothing and utility bills.
Besides consumer spending, exports were a source of weakness last quarter. That reflected in part a stronger dollar, which has made US goods pricier and therefore less competitive overseas. Persistent sluggishness in such key export markets as China and Europe hurt, too. A wider US trade deficit cut annual growth last quarter by 0.5 percentage point.
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, which has slashed drilling and exploration in response to the plunge in oil prices.
Besides pulling back on investment, businesses cut spending on stockpiles to try to pare unwanted inventories, reducing growth by 0.5 percentage point in the fourth quarter. But some economists said they thought the effort by businesses to trim stockpiles was nearing an end.
Home building was one of the bright spots in the fourth quarter; it grew at a solid 8.1 percent annual rate. The US housing market has remained solid.
Gus Faucher, senior economist at PNC, predicts the economy will generate job gains this year averaging around 180,000 a month.
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