Supported by stronger household spending, the US economy grew higher than the previous forecasts. Consumer spending has cushioned the economy expansion from its weakness overseas. However, US GDP growth rate slowed down in the fourth quarter. Lower inflation rate is encouraging US consumers to spend more.
The gross domestic product (GDP) of the US rose 1.4 percent for the fourth quarter of 2015 as against the forecast of one percent by the Commerce Department. The third quarter's growth rate was two percent. Declining corporate profits also impacted US economy while Household buying contributed 70 percent to the US economy. Consumer spending rose 2.4 percent as against the forecast of two percent.
Bloomberg reports that the drop in earnings indicates the limits of economic expansion. US economy is still finding it difficult to gain momentum. The corporate sector suffered drop in profits in 2015 and this is the worst in the past seven years. The sluggish overseas markets, slump in commodities prices and lowering investments are impacting corporate performance in a more negative way.
Gus Faucher, an economist at PNC Financial Services Group Inc in Pittsburgh, said "It's really US consumers, who are powering the global economy forward at this point. At the same time, there are pressures on businesses in terms of the stronger dollar, rising labor costs and slowing productivity growth even as a rise in energy prices will help ease that drag for oil producers."
Reuters further adds that rising consumer spending allays fears of recession that resulted in stock market sell-off early 2016. Tightening of labor market and inflation rise may propel US Federal Reserve to gradually hike interest rates this year. Since consumers are back to spending more, there wouldn't be any sign of recession, said some economists. The policy of gradual interest rate normalization may continue further.
The average growth rate for the first three quarters of 2015 was 2.2 percent. The US economy recorded 2.4 percent growth rate for 2015 falling in line with 2014. Its fourth quarter's growth rate indicated more spending on services including recreation and transportation. US exports on the other hand, also fell less than the previous forecasts.
During past eight years, US economic prospects lagged behind most pessimistic forecasts. The US Federal Reserve made a forecast that GDP would grow 3.5 percent in 2013 and continue to grow in the range of 2.5 percent and 2.8 percent for next few years. But, US Federal Reserve was forced to revise down its predictions, as reported by Time.
The average forecast of 73 economists in a Bloomberg's survey was one percent for the fourth quarter growth in 2015. Projections were ranging from no change to 1.4 percent. This was the last of three forecasts for fourth quarter before annual revisions in July.
Fed Chair Janet Yellen raised interest rate in December 2015 for the first time since the financial crisis in 2008. Some economists predict further hikes in 2016.
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