WASHINGTON: The US economy slowed in the final quarter of 2014, with a sharp gain in consumer spending driving growth, but the outlook for the first quarter is even dimmer.
As the Federal Reserve mulls raising near-zero interest rates this year, the Commerce Department's third estimate of gross domestic product (GDP) growth Friday was left unrevised at an annual rate of 2.2 percent following the third quarter's blistering 5.0 percent pace.
The expansion in the final months last year disappointed analysts, who on average had pegged GDP to rise 2.4 percent.
Growth in consumer spending, which accounts for more than two-thirds of output in the world's largest economy, was revised upward to 4.4 percent, the strongest gain in nearly nine years, from 4.2 percent.
Subtracting from GDP was a 10.1 percent increase in imports, a sharp 7.3 percent fall in federal government spending and slower inventory investment.
Corporate profits fell 1.4 percent quarter-over-quarter, after rising 3.1 percent in the third quarter.
Inflation turned negative in the fourth quarter, reflecting in part the rapid decline in crude oil prices. The personal consumption expenditures price index, the Federal Reserve's preferred inflation measure, fell at an annual rate of 0.4 percent after a 1.2 percent rise in third quarter.
Excluding often-volatile food and energy prices, so-called "core" PCE prices edged up 1.1 percent, well below the Fed's 2.0 percent target.
In 2014, the economy grew 2.4 percent, picking up from 2.2 percent in 2013.
The Commerce Department data showed little change in the picture for the US economy. But the upward revision to consumer spending was smaller than expected, suggesting there was less momentum heading into the new year.
Macroeconomic Advisers lowered its first-quarter GDP estimate by one-tenth to 1.1 percent Friday. The Atlanta Fed this week cuts its GDP projection tracker by one-tenth to 0.2 percent after a dismal report on durable goods orders.
"The first quarter looks even softer, in part due to adverse weather, but abstracting from the vagaries of the quarterly data, real growth appears to be trending close to a respectable three percent pace," said Scott Hoyt of Moody's Analytics.
The Fed noted in mid-March that growth prospects were more muted than they were just three months ago, as it opened the door to a hike midyear in the federal funds rate, stuck at the zero level since December 2008 to support the economy through the Great Recession and recovery.
The US central bank slashed 0.3 percentage point from its growth forecast for this year, to 2.3-2.7 percent, in part because American households had tailed back spending.
Jay Morelock of FTN Financial said it was crucial to know whether first-quarter weakness will prove "transitory" as it did in 2014 or if the slowdown influences business investment and hiring in the second quarter.
"The impact of dollar strength and energy price declines may prove too much for GDP to hit the long-awaited 3.0 percent threshold in 2015, leaving another year of mid-2.0 percent growth in its wake."
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