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GDP Hits Speed Bump in Q4 with Annualized 2.6% Growth

money-graph-ratesU.S. economic growth pumped the brakes in 2014's final months, falling off by nearly half compared to the quarter prior, according to a government estimate.

In a first-look report, the Bureau of Economic Analysis (BEA) reported that gross domestic product (GDP) expanded at an annualized rate of 2.6 percent in 2014's fourth quarter, sharply down from 5.0 percent growth in the third quarter.

Economists had projected an annualized increase of 3.2 percent.

According to BEA, the slowdown mostly came from a rise in imports coupled with a decline in exports, a downturn in government spending, and decelerations in nonresidential fixed investment.

Those weaknesses were offset by an upturn in private inventory investment and a pickup in consumer spending as falling gas prices left Americans with more discretionary income. The government estimated that consumer spending—a major portion of U.S. economic activity—increased at a rate of 4.3 percent in Q4 compared to 3.2 percent the months prior.

Residential fixed investment, a partial measure of housing's contribution to the economy, also grew at a faster pace, advancing 4.1 percent compared to an increase of 3.2 percent in Q3.

The latest government update comes days after Federal Reserve officials released their January policy statement. In their announcement, policymakers described economic growth as "solid," though a drop in inflation reinforced their view that they can remain "patient" in normalizing monetary policy.

For the entire year, BEA estimates GDP rose 2.4 percent from 2013, a slight acceleration over the previous year's growth rate as a first-quarter decline dragged the yearly average down.

The bureau said the improvement reflected an acceleration in nonresidential fixed investment, a smaller drop in federal government spending than in 2013, and gains in private inventory investment, consumer spending, and state and local government spending.

BEA's second Q4 estimate, which will include additional measures, is set for release February 27.

About Author: Tory Barringer

Tory Barringer began his journalism career in early 2011, working as a writer for the University of Texas at Arlington's student newspaper before joining the DS News team in 2012. In addition to contributing to DSNews.com, he is also the online editor for DS News' sister publication, MReport, which focuses on mortgage banking news.

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