By Lucia Mutikani
WASHINGTON (Reuters) – US economic growth slowed sharply in the fourth quarter as a weak business spending and a larger trade deficit offset the fastest pace of consumer spending since 2006.
The economic slowdown occurs after two consecutive quarters of strong growth and could be short-lived due to tailwinds left lower gasoline prices.
Other data on Friday showed US consumer confidence climbed in January to highest in 11 years.
“We see strong domestic consumption continues to support the growth momentum in the coming months despite investment to suffer by falling oil prices, “said Gennadiy Goldberg, an economist at TD Securities in New York.
The US gross domestic product grew at an annual rate of 2, 6 percent after the tremendous rate in the third quarter of 5 percent, said Friday the Commerce Department in its first estimate of GDP in the last three months of 2014.
Economists polled by Reuters had expected that the US economy expanded at a rate of 3 percent in the fourth quarter.
Most economists think that the economic fundamentals of the United States are strong enough to withstand a negative impact of weakened foreign economies.
Even with the moderation in the fourth quarter, growth remained above the rate of 2.5 percent, which is considered as the potential of the economy.
US stocks fell after the GDP report while prices of Treasuries rose. The dollar remained virtually unchanged against a basket of currencies.
Throughout 2014, the economy grew 2.4 percent compared to 2.2 percent in 2013. The report was met two days after the Federal Reserve said the economy expanded at a “solid pace”, better assessment leaving the central bank en route to raise rates this year.
The US central bank maintains its Key attractions near zero since December 2008 and most economists expected to start uploading the middle of this year rate.
Consumer spending, which accounts for over two-thirds of the activity economy, grew at a rate of 4.3 percent in the fourth quarter, the biggest advance since the first quarter of 2006 and up from the third quarter rate of 3.2 percent.
Prices lower gasoline-have fallen 43 percent since June according to the Government- and strengthening labor market have sparked a surge of optimism among families. The consumer confidence index from the University of Michigan rose to 98.1 this month, the best reading of data from January 2004 compared to December figure 93.6.
“The level Consumer confidence supports our view that consumer spending will begin steadily year after falling energy prices widened the wallets of Americans, “said Bricklin Dwyer, economist at BNP Paribas in New York.
LOW INFLATION
A separate report from the Labor Department showed that labor costs rose steadily in the fourth quarter but remained far from the levels that could bring inflation the goal of the Fed’s 2 percent.
Inflationary pressures were off in the fourth quarter. The index measuring personal consumption spending fell at a rate of 0.5 percent, the weakest since the first quarter of 2009. Excluding food and energy, prices rose 1.1 percent reading, the lowest rate since the second quarter of 2013.
“With inflation could remain weak in 2015, one patient Fed probably wait until September to begin a slow and steady tightening cycle,” said Michelle Meyer, an economist Bank of America Merrill Lynch in New York.
The strong pace of consumer spending in the fourth quarter, however, was overshadowed by a drop in capital spending. The business spending on equipment fell at a rate of 1.9 percent. It was the largest contraction since the second quarter of 2009.
The business spending on equipment had advanced at a rate of 11 percent in the third quarter. The weakness in the fourth quarter may reflect cuts or delays in launching investment projects by companies in the oil industry. But it could also be the consequences after two consecutive quarters of strong gains.
The replenishment goods companies to meet demand contributed 0.82 percentage points to GDP growth.
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