GDP climbs 2.6% in 4Q

January 30, 2015

WASHINGTON (2/2/15)--After a 5% expansion in the third quarter, the economy again grew at a healthy pace in the final quarter of 2014 with a 2.6% increase, albeit below what analysts had anticipated ( Jan. 30).

The Bureau of Economic Analysis' first reading of GDP for the quarter was driven by consumer spending, inventory investment and fixed investment, according to Moody's.

Trade and federal spending, in addition to sluggish prices weighed down by beleaguered oil prices, on the other hand, dragged the headline number lower.

"Unemployment is falling rapidly, at more than 1 percentage point per year," said Scott Hoyt, Moody's analyst ( Jan. 30). "Household spending is leading growth. More and better-quality jobs, low debt-service burdens, record-high stock prices and rising housing values, and the plunge in gasoline prices are significant tailwinds to consumer spending."

Broken down, consumer spending drove the gains in growth with a 2.1 percentage-point contribution, slightly down from the 2.2 increase the prior quarter.

Inventory investment contributed 0.8 percentage point, and fixed investment added 0.4.

Net exports, however, fell by 1 percentage point after adding 0.8 in the third quarter. Analysts expect this trend will continue while the dollar outpaces its international competitors.

For 2014 as a whole, GDP rose 2.4% compared with 2013's performance. This marks the fastest annual growth since 2010.

The year's gains were driven by investment and, to a lesser extent, consumer spending, which picked up later in the year.

Real disposable income climbed 3.8% on a quarterly basis after a 2% improvement the prior quarter, and personal saving for the fourth quarter jumped 4.6% after a 4.7% in the third quarter.