U.S. economy in the fourth quarter of 2014 expanded at a slower pace than estimated despite robust growth of personal consumption spending.
According to the second estimate from the U.S. Commerce Department on Friday, the economy expanded at a 2.2 percent annual rate in the fourth quarter of 2014, revised down from the advance estimate of 2.6 percent.
The economy grew 5 percent in the third quarter and 4.6 percent in the second quarter after contracting in the first quarter of 2014. In whole 2014, the economy expanded 2.4 percent year on year, compared with an increase of 2.2 percent in 2013.
The Commerce Department said in a statement that the revised- down figure mainly reflected that the private inventory investment increased less than previously estimated.
The broad data in the fourth quarter showed a mixed picture for the economy. Personal consumption expenditures expanded at the fastest pace in four years, while business investment, government spending and exports decelerated.
Personal consumption spending, which accounts for about 70 percent of the U.S. economy, contributed 2.83 percentage points to theGDPgrowth in the fourth quarter, higher than its 2.21- percentage-point contribution in the third quarter. In the fourth quarter, the consumption expenditure increased 4.2 percent, compared with an increase of 3.2 percent in the third.
Consumption growth continued to trend upward as consumers' economic optimism remains near post-recession highs. A separate report showed Friday that U.S. consumer sentiment in February fell to 95.4 from 98.1 in January, an 11-year high level. The decline from January's historic high still left consumer confidence at the highest levels in eight years, according to a joint survey conducted by the Thomson Reuters and University of Michigan.
TheWhite House's Council of Economic Advisers (CEA) contributed the accelerated consumption growth to the household deleveraging. Lower household leverage reflects both lower outstanding debt levels and lower interest rates, leaving Americans with more room to consume and invest, strengthening the overall recovery, said Jason Furman, the CEA chairman, said in a statement on Friday.
The strong consumption was also lifted by the improvement in the labor market as well as by the increase in household purchasing power resulted from the sharp drop in oil prices, the Federal Reserve chair Janet Yellen said in her testimony to Congress this week.
Strong domestic demand drove up imports in the fourth quarter, which subtracted 1.58 percentage points from GDP growth compared with a 0.16 percentage point contribution in the previous quarter.
Compared with the previous quarter, other economic indicators recorded less contribution to the GDP growth in the fourth due to their slower growth. Nonresidential fixed investment rose 4.8 percent in the fourth quarter, decelerating from the 8.9 percent growth in the third; exports growth slowed to 3.2 percent in the fourth, and the federal government spending decreased 7.5 percent in the quarter, compared to an increase of 9.9 percent in the third.
Analysts widely expected the consumer spending will continue to buoy up the overall economic growth in 2015.
Yellen said in her testimony that the drop in oil prices will likely to a "significant" overall plus for the U.S. economy, and the GDP is expected to be strong enough to result in a further gradual decline in the unemployment rate. Job growth has strengthened over the past year, with payrolls rising 257,000 in January to cap their strongest three-month run in 17 years.
Despite the economic expansion, the U.S. economy is still facing muted inflation pressure. The personal consumption expenditures price index fell at a 0.4 percent annual rate in the fourth quarter, the weakest reading since early 2009.
However, Yellen said that recent drop in inflation was mainly due to oil price drop, and that the Fed is reasonably confident that inflation will move back over the medium term toward the objective, as the labor market conditions continue to improve further./.