STOCK MARKET WATCH -- Wednesday, 4 February 2015

[Demeter]

7. US 4THQ Growth Rate Put at 2.6% as Economy Pulls Ahead

http://www.nytimes.com/2015/01/31/business/economy/us-gdp-fourth-quarter-economic-output.html

...new government data showed the American economy grew at a decent 2.6 percent rate in the final quarter of 2014. That pace represents a downshift from the blistering 5 percent growth rate recorded in the third quarter and was modestly below what economists had been expecting. Nonetheless, most economists viewed the report in a positive light and saw the robust consumer spending as pointing to an improving economy in 2015. The combination of plunging energy prices and a healthier job market in late 2014 helped consumer spending rise last quarter by 4.3 percent, the fastest rate of growth since early 2006. And in a separate report on Friday, the Thomson Reuters/University of Michigan survey of consumer sentiment in January rose to its highest level since January 2004.

...Not everything was rosy, though. While consumer spending accounts for nearly 70 percent of economic output in the United States, there were weaknesses elsewhere that could drag on growth in the months ahead and which are likely to foster continuing turmoil in markets for stocks, bonds and currencies. The country’s trade balance deteriorated, shaving a full percentage point off the overall growth rate, as export gains slowed sharply from earlier in the year, while imports surged.

Although any single quarter represents a snapshot of the economy, rather than a nuanced portrait, experts suggested the falloff in net exports reflected a stronger dollar, which makes imported goods more competitive domestically while increasing the price of American products abroad. It also reflected weakness in Europe and other overseas markets, which are becoming tougher for American companies...For all of 2014, the economy grew at a rate of 2.4 percent, roughly in line with the underlying trend of the last five years.

One notable negative in late 2014 was a 1.9 percent fall in spending on new equipment by companies, reversing increases of more than 11 percent in the previous two quarters. Many economists expect business spending to be lackluster in the coming months, hurt by deep cuts among drillers and other energy companies because of plunging oil prices.

Military spending, which tends to be volatile, plunged last quarter and was another major drag on the overall trend, subtracting about 0.4 percentage point from the growth rate.

“The composition was what we thought: strong private consumption, modest growth in investment and drags from trade and government spending," Mr. Gapen added. “But I think the government spending drag is a one-off and there is tangible evidence that the consumer is in a much better place than in previous years."

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