The economy slowed substantially in the fourth quarter after a torrid six-month stretch, leaving gains for the year roughly in line with the recovery so far. Gross domestic product. which measures all the goods and services produced in the U.S., expanded at a seasonally adjusted annual rate of 2.2% in the three months ended Dec. 31, below the 2.6% first estimated. That beat economists’ forecasts of a revision to 2%.
The main culprit: Businesses replenished stocks more slowly than initially thought, adding less to economic growth. On a positive note, that means an even sharper pullback in restocking that was expected to subtract from growth in the first quarter won’t be as dramatic, says economist Paul Ashworth of Capital Economics. Overall, however, the economy is accelerating after expanding just above 2% annually throughout the 5 ½ year-old recovery. Growth averaged 4.8% in the second and third quarters of last year, the best six-month stretch since 2003, and many economists expect output to rise by 3% this year.
For all of 2014, gross domestic product increased 2.4%, up from 2.2% in 2013, after harsh winter weather early in the year caused the economy to shrink in the first quarter. Another encouraging sign last quarter is that business investment increased 4.8%, more than the 1.9% first estimated. Business capital spending still cooled toward the end of the year as a strong dollar hampered exports and the plunge in oil prices dampened energy company investments.
Consumers, however, splurged as falling gasoline prices left them more discretionary cash. Consumer spending rose 4.2%, just slightly below the initial 4.3% estimate and its strongest showing in four years.. And while exports grew 3.2%, more rapidly than initially thought, imports jumped far more dramatically at 10.1%, leaving a slightly wider trade deficit than first estimated and shaving a bit more off growth. The strong dollar bolstered imports by making them cheaper for U.S. consumers.