US Economy Grows At Slower Pace

US Economy Grows At Slower Pace

The US Commerce Department on Friday said that gross domestic product (GDP) witnessed only 0.7% growth for the fourth quarter on an annualized basis. The strong dollar, as well as tepid demand from International markets hurt US exports even as businesses were trying to accelerate their efforts to cut down on their inventory. While weak global oil prices continued to challenge investments in the energy sector, the mild weather has slashed consumer spending on apparel and utilities.

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In Line With Expectations

However, other economic data was in line with expectations of most economists surveyed. The report came on the back of a 2% growth in the economy in the third quarter. For the full year 2015, the economy advanced 2.4% following similar growth in the preceding year. Excluding trade and inventories, the economy would have achieved 1.6% growth rate. Mild temperatures and inventories were considered temporary impediments.

The stock market took the data in stride and stocks posted major gains on Friday. All three major indices up about 2.5% on the day. This move up was contrary to expectations as some analysts and economists feared that the data would lead to another wave of selling. The equity market has already been hurt by weak growth in China.

Labor Conditions Improved

Last Wednesday, the Federal Reserve admitted that the economy has slowed since late last year. However, the central bank indicated that labor market conditions showed further improvement.

Any further negative economic data might force the policymakers to defer the next planned interest rate hike. In December last year, the Fed hiked key rates for the first time in a decade by 25 basis points. Currently, economists expect the Fed to announce another 25 basis points hike in March. However, volatility in the financial markets could spoil the hike.