The US market took a hit on Friday morning after the government released data indicating an economic slowdown in the fourth quarter of 2014.
Friday, January 30, 2015
Gross domestic product in the US grew at a 2.6% annual rate in the fourth quarter, well below the 5.0% clip of the previous quarter. It was also below analysts’ expectations of 3.2% growth.
For all of 2014, the US economy expanded 2.4%, up slightly from the 2.2% expansion of 2013. Fourth quarter consumer spending in 2014 grew by 4.3% - the fastest rate since before the financial crisis. However, lower business spending, government spending and net exports pulled down economic growth.
“The economy is also showing more signs of lopsided growth, being too reliant on the consumer,” Chris Williamson, chief economist at Markit, explained to MarketWatch. Williamson went on to voice his concern that the slowdown might push back a rate hike by the Federal Reserve, but other economists were unfazed.
Major indices opened lower on Friday. The Nasdaq lost 0.23%, the S&P 500 fell 0.45%, and the Dow fell 0.7%.
Slowing economy may be a sign of trouble ahead
To some, the disappointing fourth quarter results underscored the economy’s inability to produce consistent, even growth during the recovery, reported The Wall Street Journal. While consumer spending thrived amid lower gas prices and solid job growth, business investment, export growth and government outlays registered uninspiring performances.
The report also came on the heels of the Fed’s optimistic view of the economy following its 2-day meeting. The Fed stated that the economy was expanding at a “solid pace,” but reiterated that it would need to see more proof of expansion before deciding on an interest rate hike.
Some economists have rightly wondered if this recent setback in economic growth will force the Fed to take a more cautious stance on interest rate increases. The US is performing better than many of its global peers, as GDP growth for 2014 still outpaced that of 2013, but the Fed may wait until further evidence that the fourth quarter slowdown is not indicative of a larger trend before setting a date for the rate hike.
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