With the latest government data released on Friday, by the Bureau of Economic Analysis, US GDP’s 4th quarter results have turned out to be lower than previously anticipated. The Q4 results which cover economic activity carried out in the nation during the months of October, November and December revealed only a 2.2% growth compared to the strong growth figures observed in the previous two quarters.
The 2.2% growth figure is only slightly lower than the earlier 2.6% advance estimate made by the BEA, earlier last month. The reason for this slower rate of growth has been attributed to lower inventory building by business houses, even as consumer spending had picked up in the last quarter.
Consumer spending saw a healthy jump, and grew at a rate of 4.2 percent. This is the highest growth observed for consumer spending in the US ever since 2010. Lower gasoline prices and a pick-up in hiring activity across sectors saw higher disposable income in the hands of the consumer, which was a strong driving force in Q4 growth.
Economists, however, are predicting an optimistic rate of growth of 3% this year on the back of a demand driven growth. In view of rising disposable incomes and the lower levels of private stockpiles, the next quarter growth is expected to be the demand led.
The lower Q4 GDP growth could also be explained by the lower growth in exports as compared to imports. Any country’s trading activity has a direct impact on its growth rates. The trade deficit in Q4 was larger compared to the previous quarters, chiefly because while exports saw a mere 3.2% rate of increase, imports saw a whopping 10.1% increase, thus leading to a remarkable trade imbalance, which contributed to Q4’s lower growth outcome.
Although, it must also be said that a minor contraction was along expected lines after the US economy showed growth rates of 4.6% in the second quarter, and 5.1% in the third quarter. These growth rates, while significantly lower when compared to the growth rates of many developing countries, are actually considered very high in the case of developed countries.
In view of two successive strong growth rate quarters, US businesses were wary of inventory costs and sought to reduce any financial loss by maintaining lower stockpiles, which pushed down the rising steam in the economy. As mentioned earlier, most economists expect a strong growth rate in the coming quarters, although the same may be taken with circumspection in light of the potential bad weather expected in the North-East and a backlog at West Coast ports, both of which could play spoilsport with any such optimistic growth projections.