U.S. economy cooler than previously forecast

The U.S. economy grew more slowly in the final three months of 2014 than initially thought.

The nation's gross domestic product -- which represents the total value of goods and service -- expanded at a rate of 2.2 percent in the fourth quarter, down from an advance estimate of 2.6 percent, the U.S. Commerce Department said Friday.

The government attributed the decline in growth to an increase in imports, weaker federal spending and a decline in inventory spending. Partly offsetting that decrease was a healthy boost in business investment and steady personal consumption.

The U.S. economy has shown resilience amid a slowdown in Asia, Europe and other parts of the world. And despite the dip, most forecasters expect the economy to grow around 3 percent for the year. Job-creation has picked up, with employers adding an average of 284,000 jobs over the last three month.

Walmart workers getting a raise

Many analysts believe the year will start slowly, in part reflecting the disruptions caused by a rough winter. However, it's unlikely to be as bad as the first quarter of 2014, when heavy snow and cold contributed to a 2.1 percent plunge in growth in the first quarter of 2014.

That big drop was followed by sizzling growth rates of 4.6 percent in the second quarter and 5 percent in the third quarter.

"Overall, while the economy ended the year with less momentum than in the summer and fall, average annual growth of 2.9 percent in the past six quarters still denotes a meaningful upward shift from 2.1 percent in the first four years of the recovery," said Sal Guatieri, a senior economist with BMO Capital Markets, in a note.

Analysts are looking for less of a roller-coaster ride this year. JPMorgan economists say growth will come in around 2.5 percent in the current quarter and then hover between 2.5 percent to 3 percent for the rest of the year. They are forecasting growth of 3.1 percent for the entire year, a significant improvement from the 2.4 percent growth seen in 2014.

If the forecast proves accurate, it would be the best GDP performance since the economy grew by 3.3 percent in 2005, two years before the beginning of worst economic downturn the country has experienced since the 1930s.

Joel Naroff, chief economist at Naroff Economic Advisers, is even more optimistic. He's forecasting economic growth of 3.5 percent this year. Naroff and other economists believe the key to the economy shifting into a higher gear will be further improvements in the labor market, when stronger job gains leading to rising wage gains.

"I see 2015 as a really good year for consumer spending because of the wage gains," Naroff said.

Best jobs of 2015

Even though the recession ended nearly six years ago, wage growth has been weak as businesses were able to pay less with so many unemployed looking for jobs. Several large companies have already signaled a willingness to pay more to retain workers.

News last week that Walmart, the nation's largest private employer, would also increase its minimum pay could be a sign that a tighter labor market are finally leading to increased wages, some analysts believe.

The unemployment rate has fallen to 5.7 percent.

Fed Chair Janet Yellen, testifying to Congress this week, listed stronger wage growth as one of the elements the central bank is looking for before deciding to start raising interest rates. She said as long as wage gains remained weak and inflation low, the Fed was prepared to remain "patient" in moving to raise rates.

Many private economists believe the Fed's first move to increase its key rate, which has been near a record low of zero for six years, will not come until June at the earliest.

f

We and our partners use cookies to understand how you use our site, improve your experience and serve you personalized content and advertising. Read about how we use cookies in our cookie policy and how you can control them by clicking Manage Settings. By continuing to use this site, you accept these cookies.