US Economy Posts Strong 4th Quarter Growth

01/30/2014 2:32 PM

01/30/2014 2:32 PM

The U.S. economy closed 2013 with a strong an annual growth rate of 3.2 percent from October through December, the Commerce Department said Thursday.  The strong fourth quarter growth came despite a partial government shutdown in October, and suggests underlying strength in an economy that has struggled for several years to maintain momentum. “Looking at the various components of GDP, growth in consumer spending picked up from the previous quarter, as did exports, business investment was in line with its recent performance, but Federal spending fell sharply, and housing posted its first quarterly decline since 2010,” said Jason Furman, head of the White House Council of Economic Advisers. “ In the last two quarters economic growth accelerated to a 3.7 percent annual rate and over the four quarters of 2013, real GDP grew 2.7 percent, up from 2.0 percent in 2012” Coming on top of a third-quarter growth rate of 4.1 percent, it also suggests there were plenty of tailwinds for the economy as it entered 2014.  “Fourth quarter GDP growth came in slightly above expectations. After some weakness in the first half of 2013, the U.S. economy appears to be hitting its stride,” said Stuart Hoffman, chief economist for PNC Financial. “Consumers are slowly but steadily increasing their spending thanks to moderate job and income growth and gains in stock and home prices. After years of putting off purchases consumers are releasing some of their pent-up demand, buying big ticket items such as cars.”  On the downside, federal government spending subtracted almost a full percentage point from growth in the final three months of 2013. Federal spending fell at annual rate of 12.6 percent from October through December, thanks to deep spending cuts forced by the budget sequester and the partial government shutdown.  Offsetting that, however, both U.S. and foreign consumers and companies boosted their purchases of American made or produced goods and services in the final stretch of 2013. “Overall, these data suggest that the U.S. economy ended 2013 on a relative positive note, with modest growth and strength in consumer spending and exports,” Chad Moutray, chief economist for the National Association of Manufacturers, wrote in his blog Shopfloor.org. Moutray was among a smaller group of economists offering more guarded forecasts for 2014. In his blog, he said the data “also reflected some weaknesses, including lackluster business spending growth, reduced housing expenditures, and declines in federal government spending. For the year as a whole, 2013 was a disappointment, with just 1.9 percent growth in real GDP.” If divided in two, 2013 told two very different tales. The economy grew at a dismal annual rate of 1.8 percent from January to June, but a sizzling 3.7 percent rate from July through December. Many of the drags that weighed down the first half of 2013, including steep mandatory cuts in government spending, won’t be factors this year. The strong end-of-year numbers also help explain why the Federal Reserve announced Wednesday that it was accelerating its removal of stimulus from the U.S. economy. There was some question whether it would take a break given very weak December hiring numbers, but the economic growth numbers were solid enough for the Fed to keep removing stimulus. Starting in February, the Fed will reduce its purchases of government and mortgage bonds by another $10 billion a month.  The two biggest potential threats to economic growth and hiring this year are another political showdown over the debt ceiling, and growing financial turmoil in developing nations. On the debt ceiling, the Treasury Department has said it will have to turn to extraordinary measures in late February in order to pay bills already accumulated. A bipartisan budget agreement late last year and smooth implementation of it this year auger well for a compromise that would avoid another self-inflicted wound.

 

 

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