US Economy | Seeing the positive in the negative: US GDP growth falls to 0.7%

Seeing the positive in the negative: US GDP growth falls to 0.7%

January 29, 2016 1:03 PM (UTC+8)

 

Well, talk about perfect timing.

Friday’s announcement that the US economy experienced a sharp slowdown in the fourth quarter, was almost guaranteed to send the already shaky US stock markets sharply lower, but it just so happened that a few hours earlier, the Bank of Japan instituted negative interest rates for the first time ever.

Wal-Mart outlet
Wal-Mart outlet

The move by the BOJ, intended to spur investment in Japan and halt deflation in that economy, was so well received that stock markets around the world rallied on the news.

It’s almost as if US investors ignored the US Commerce Department’s Friday report that a strong dollar and weak global demand for US exports caused the US economy to  experience a sharp decline in its rate of growth.

Gross domestic product grew at an annual rate of 0.7%, sharply lower than the 2% growth in the third quarter. For the full year, the economy grew 2.4% similar to the previous year.

Or maybe investors were just happy to see the growth rate match economists’ expectations.

The Commerce Department said growth fell as lower oil prices hurt  investment by energy firms and unseasonably mild weather cut into consumer spending on utilities and apparel.

Two of the major reasons blamed for the decline were high inventories and mild temperatures. Inventories grew by $68.6 billion in the fourth quarter, down from $85.5 billion in the third quarter, it was more than economists had expected.

Consumer spending grew by 2.2%, a big drop for the 3% of the third quarter, as unusually mild weather hurt sales of winter apparel in December.

Since both are inventories and weather are temporary, the economy could quickly bounce back in the first quarter. And if one excludes inventories and trade, the economy grew at a pace of 1.6%.

The falling price of commodities hurt investment in the energy industry.  Spending on mining exploration, wells and shafts plunged at a rate of 38.7% after dropping 47% in the third quarter.

The 60% drop in oil prices forced oil field companies to slash their capital spending budgets.

Overall, business spending on equipment contracted at a 2.5% rate last quarter after rising at a 9.9% pace in the third quarter.

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