U.S. GDP Growth Cooled in Q4, But Consumer Optimism Grew Significantly

World’s largest economy achieved GDP annual growth of 2.6% in a fourth quarter of 2014

U.S. economy growth cooled in the last quarter of 2014, as business spending remained weak and trade deficit widened. However, the consumer spending grows rate was highest since 2006.

U.S. Department of Commerce announced on Friday that the world’s largest economy grew at an annual rate of 2.6% in the last three months of 2014, compared to 5% growth rate in the in previous three months of 2014.

The GDP growth rate in the U.S. has been averaged 3.27% from 1947 until 2014, reaching an all-time high of 16.90% in the Q1 of fiscal year 1950 and a recorded an all time low of -10% in the Q1 of fiscal year 1958.

Due to the instability in Europe and Asia, which seems to be threatening to U.S. based companies, economist around the world forecasted gross domestic product (GDP) growth in the range of 2 to 3%.

Secretary of Commerce of USA, Penny Pritzker said a press conference today, “Today’s advance estimate of fourth quarter real GDP was bolstered by consumer spending, which grew at its fastest rate since 2006, and consumer optimism which is driven by real wages beginning to rise and declining gasoline price.”

Consumer Spending, which seems to be the only factoring for GDP growth in USA and contributes more than two-third to GDP, increased 4.3% in the last quarter. This growth rate is highest in 11 years, Wall Street Journal reported.

The confidence of US household has been boosted by lowering fuel prices and employment growth. According to Bloomberg, current employment level is the highest since 1999. Following this development, it is expected that consumer spending will continue to rise.

Survey of Consumers by University of Michigan states consumer sentiments have improved 20.8% year-on-year (YoY) and 4.8% month-on-month (MoM) in January 2015, as the level consumer optimism is the highest in last 10 years.

Business investment, which includes capital expenditure on equipment, intellectual property, and software, growth rate was 1.9% in the fourth quarter, as companies invested more in plants and facilities. Low business investment is attributed to declining oil prices by some economics, as energy companies are reducing their capital expenditure due to falling profit margins.

Due to a sharp decline in defense expenditure, the government spending growth rate also fell to 2.2%. Growth rate of exports also remained slow at 2.8%, compared to 4.5% growth rate in the third quarter. Strengthening of the dollar compared to other foreign currencies as resulted decline in exports.

In real estate, residential investment increase at 4.1% rate in the last quarter, compared to 3.2% rate in the third quarter.