×

U.S. ecomony slows during last quarter

WASHINGTON- The U.S. economy’s growth slowed sharply in the final three months of 2015 to a 0.7 percent annual rate. Consumers slowed spending, businesses cut back on investment and global problems trimmed exports.

The slowdown could renew doubts about the durability of the 6-year-old economic expansion, though most economists expect growth to rebound in the current January-March quarter.

The government’s estimate Friday of the economy’s expansion in the October-December period was less than half the modest 2 percent annual growth rate in gross domestic product in the previous quarter. It was the weakest showing since a severe winter slowed growth to a 0.6 percent annual rate in last year’s first quarter.

Paul Ashworth, chief U.S. economist at Capital Economics, called the disappointing fourth quarter performance a “temporary blip” and not likely “the start of a more serious downturn.”

Ashworth said he thinks GDP growth will rebound to an annual rate between 2.5 percent and 3 percent in the first half of this year as consumer spending picks up in response to further solid gains in job growth. For 2016 as a whole, Ashworth is forecasting economic growth of 2.5 percent.

Much of the weakness last quarter reflected a slowdown in consumer spending, which grew at an annual rate of 2.2 percent, compared with a 3 percent rate in the previous quarter. Spending on both durable goods, such as cars, and nondurable goods, such as clothing, slowed.

Consumer spending accounts for about two-thirds of economic activity, and most analysts are counting on continued strong employment growth to fuel a rebound. Some, however, worry that China’s economic troubles and sinking oil and stock prices could continue to dampen the U.S. expansion.

Friday’s estimate of fourth-quarter growth was the first of three the government will issue.

Besides consumer spending, another source of weakness last quarter was a drop in exports. It reflected in part a stronger dollar, which has made U.S. goods pricier and therefore less competitive overseas. Persistent weakness in such key export markets as China and Europe hurt, too. A wider U.S. trade deficit cut annual growth last quarter by 0.5 percentage point.

Another drag came from cutbacks in business investment spending, which fell at a 1.8 percent annual rate, with spending on structures down 5 percent. That reflected a 38 percent plunge in spending in the oil and gas industry, which has slashed drilling and exploration in response to the plunge in oil prices.

In addition to their investment pullback, businesses cut spending on stockpiles to try to pare unwanted inventories. That effort reduced growth by 0.5 percentage point in the fourth quarter.

Home construction grew at a solid 8.1 percent annual rate. Government spending slowed to a growth rate of just 0.7 percent. Spending by the federal government grew at a 2.7 percent annual rate, while state and local governments cut back on spending at a rate of 0.6 percent.

For all of 2015, the economy grew 2.4 percent, matching the growth in 2014. Both years improved on a 1.5 percent increase in 2013. Still, last year’s growth rate extended the economy’s pattern of subpar expansion since the Great Recession officially ended in June 2009.

For 2016, economists have forecast another year of modest growth of around 2 percent. At the same time, they have nudged up the likelihood of a recession. While still low, the likelihood is now put at around 20 percent, though most analysts still see an outright recession as unlikely.

NEWSLETTER

Today's breaking news and more in your inbox

I'm interested in (please check all that apply)
Are you a paying subscriber to the newspaper? *
     

Starting at $4.85/week.

Subscribe Today