US economic growth slows to 0.7% rate in fourth quarterFriday 29 January 2016 15.39
US economic growth slowed sharply in the fourth quarter as businesses stepped up efforts to reduce an inventory glut and a strong dollar and tepid global demand weighed on exports.
US GDP increased at a 0.7% annual rate, the Commerce Department said today.
Lower oil prices continued to undermine investment by energy firms and unseasonably mild weather cut into consumer spending on utilities and clothes.
The rate of growth was in line with economists' expectations and followed a 2% growth rate in the third quarter.
The US economy grew by 2.4% in 2015 after a similar expansion in 2014.
But some of the impediments to growth - inventories and mild temperatures - are temporary and the economy is expected to snap back in the first quarter of this year.
Nevertheless, the GDP report could spark a fresh wave of selling on the stock market, which has been roiled by fears of anemic growth in both the US and China.
The Federal Reserve earlier this week acknowledged that growth "slowed late last year," but also noted that "labour market conditions improved further."
The Fed raised interest rates in December for the first time since June 2006.
Though the Fed has not ruled out another hike in March, financial markets volatility could see that delayed until June.
Today's figures show that US businesses accumulated $68.6 billion worth of inventory in the last quarter of the year.
While that is down from $85.5 billion in the third quarter, it was a bit more than economists had expected, suggesting inventories could remain a drag on growth in the first quarter.
Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 2.2% rate. That marked a step-down from the 3% pace seen in the third quarter.
Unusually mild weather hurt sales of winter clothing in December and undermined demand for heating during the quarter.
With petrol prices around $2 per gallon, a tightening labour market gradually lifting wages and house prices boosting household wealth, economists believe the slowdown in consumer spending will be short-lived.
Income at the disposal of households after accounting for taxes and inflation increased 3.2% in the fourth quarter after rising 3.8% in the prior period. Savings rose to a lofty $739.3 billion from $700.6 billion in the third quarter.
The dollar, which has gained 11% against the currencies of America's trading partners since last January, remained a drag on exports, leading to a trade deficit that subtracted 0.47 percentage point from GDP growth in the fourth quarter.
The downturn in energy sector investment put more pressure on business spending on non-residential structures. Spending on mining exploration, wells and shafts dropped at a 38.7% rate after plunging at a 47% pace in the third quarter.
Investment in mining exploration, wells and shafts fell 35% in 2015, the largest drop since 1986.
Oil prices have dropped more than 60% since the middle of 2014, forcing oil field companies such as Schlumberger and Halliburton to cut their capital spending budgets.
US business spending on equipment contracted at a 2.5% rate last quarter after rising at a 9.9% pace in the third quarter. Investment in residential construction remained a bright spot, rising at a 8.1% rate.
With consumer spending softening, inflation retreated in the fourth quarter. A price index in the GDP report that strips out food and energy costs increased at a 1.2% rate, slowing from a 1.4% pace in the third quarter.