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US economy grows 3.2% in Q4

by James Phillipps on Jan 30, 2014 at 13:46

US economy grows 3.2% in Q4

US GDP grew 3.2% in the fourth quarter driven by consumption, exports and state spending, official figures show.

This was down from 4.1% in the third quarter, but underlines why the Federal Reserve was sufficiently confident in the rate of economic growth to taper bond purchases by $10 billion this month.

The US Department of Commerce's Bureau of Economic Analysis said the deceleration in the fourth quarter reflected slowing inventory building and reduced federal government spending as well as lower non-residential fixed investment.

Capital Economics' chief US economist Paul Ashworth branded the figures 'pretty impressive', adding 'the broader picture is that, as the massive fiscal drag diminshes, US economic growth is accelerating.'

'The most encouraging element was the pick-up in the growth rate of domestic demand. Consumption growth accelerated to 3.3% in the fourth quarter, from 2.0% in the third. Growth in business investment in equipment picked up to 6.9%, from 0.2%,' he said.

'There were some weak elements, but they should be temporary.  Residential investment  fell by 9.8%, but the most recent resurgence in housing starts suggests that will be reversed in the first quarter. Similarly, the 12.6% drop in Federal government spending largely reflects the impact of the shutdown.'

'We expect GDP growth to slow to about 2.5% in the first half of this year, but that should be enough to keep the unemployment rate on a downward trajectory and ensure that the Fed continues with the gradual taper of its asset purchases.'

The pick-up in export growth to 11.4%, from 3.9%, was also a big positive. Net external demand added 1.3% to overall GDP growth, as imports increased by only 0.9%.

The Department will release its second Q4 GDP estimate on February 28.

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