US stocks opened flat on Friday after new data revealed slower economic growth than expected in the fourth quarter of 2014.
Friday, February 27, 2015
Gross domestic product rose at an annualized rate of 2.2%, falling short of an initial forecast of 2.6%, as per figures from the Commerce Department. However, the fourth quarter expansion bested median estimates from 83 economists surveyed by Bloomberg, who expected 2% growth.
With that said, consumer spending in Q4 experienced the biggest advance in four years, helping to keep investors optimistic. Combined with the steady GDP growth, there is a picture of a stable US economy overall.
“The economy is still chugging along pretty nicely,” Scott Brown, chief economist at Raymond James & Associates Inc., told Bloomberg. “We’re seeing better job growth, the drop in gas prices is really going to be beneficial for consumers and small businesses, and that should help the pace of growth to pick up.”
None of the three major US indices posted a gain or loss of over 0.1%. While the market did not make any big moves to open Friday’s trading, the S&P 500, Dow and Nasdaq are on pace to gain on the week. The S&P 500, in particular, is on track for its largest monthly gain since October 2011.
Economic gains impact unemployment, interest rate hike
The second and third quarter gains of 2014 – 4.6% and 5%, respectively – did not carry over into the fourth quarter, reported The Wall Street Journal. Still, growth was consistent enough for a 2.4% yearly gain, better than the 2.2% average from 2010 to 2013.
Meanwhile, growth in 2015’s first quarter is expected to clock in at an even slower pace. Barclay’s anticipates 2.1% gains for this quarter, while Macroeconomic Advisers anticipates 2.3% expansion.
However, the inconsistent economic performance is still good enough to lower unemployment and provide the conditions necessary for the much-anticipated interest rate hike by the Federal Reserve.
Fed Chair Janet Yellen herself described the current projections as “strong enough to result in a further gradual decline in the unemployment rate” in an address earlier in the week.
For investors, the market is flat today but should post gains for the week and the month.
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