GDP expanded at an annual rate of 2.2 percent in Q4 after soaring 5.0 percent in Q3, which had marked the fastest pace in 11 years. For all of 2014, the economy grew 2.4 percent, up from 2.2 percent in 2013 and in line with its 2.4 percent average annual performance during the five-year-old recovery that began in Q3 of 2009. Consumer spending, which accounts for more than two-thirds of GDP, grew a healthy 4.2 percent in Q4, boosted by plunging gasoline prices and strong job growth. However, a stronger dollar created a drag on GDP growth in Q4 as exports slowed and imports increased sharply. Improvements in business activity have been widespread as industrial production has increased in 52 of the last 67 months to a near record high, the service sector has expanded for 61 straight months, and durable goods orders have increased year-over-year in 52 of the last 61 months. Furthermore, the Small Business Optimism Index edged up to a near eight-year high (since October 2006), rising in 12 of the last 16 months and nearly 7 points from a year ago. At 98.0, however, the Index hovered slightly below readings that have normally been associated with expansion and below its pre-recession average of 100 from 1973 through 2007.
According to the second estimate, real gross domestic product or GDP (the output of goods and services produced within the U.S.) expanded at an annual rate of 2.2 percent in Q4 after increasing in the previous quarter by a robust 5.0 percent, which had marked the fastest pace in 11 years (since Q3 2003). GDP has rebounded over the last three quarters following a Q1 contraction that was largely the result of some temporary headwinds, including the cold winter, weak exports, and reduced inventory-building. For all of 2014, the economy grew 2.4 percent, up from 2.2 percent in 2013 and in line with its 2.4 percent average annual performance during the five-year-old plus recovery that began in Q3 of 2009. In Q4, consumer spending, which accounts for more than two-thirds of the economy, grew a healthy 4.2 percent as plunging gasoline prices and strong job growth bolstered Americans' confidence. But federal government spending declined 7.5 percent as defense outlays tumbled after rising sharply in the third quarter. Business investment in equipment increased just 0.9 percent as companies girded for a strengthening dollar and sluggish overseas growth that's expected to dampen exports, and energy companies grappled with plummeting oil prices. Exports slowed as well, rising 3.2 percent, while imports increased sharply as the stronger dollar made foreign products less expensive for U.S. consumers. The widening trade gap subtracted from economic growth. Many economists expect the economy to grow a solid 3.0 percent in 2015. "With the collapse in energy prices increasing households' purchasing power, we expect strong consumption growth to continue driving GDP growth in the first half of this year," noted economist Paul Ashworth of Capital Economics.
Rising in 14 of the last 18 months, the Industrial Production Index edged up to near November’s record high, increasing 0.2 points in January to 106.2 and was up 4.9 points from a year ago. Additionally, the Index has risen in 52 of the last 67 months since bottoming at 83.5 in June 2009.
New orders for manufactured durable goods rose sequentially for just the second time in the last six months, increasing 2.8 percent in January, after falling 3.7 percent the previous month. Additionally, new orders for manufactured durable goods were up 5.5 percent from a year ago and have advanced year-over-year in 52 of the last 61 months. Excluding the volatile transportation component (aircraft orders), durable goods orders increased sequentially for the 11th time in the last 17 months, advancing 0.3 percent in January.
The service sector grew (exceeding 50 on the ISM Non-Manufacturing Index) for the 61st month in a row, with the pace of growth accelerating slightly for the second consecutive month. In January, the Index edged up 0.2 points to register at 56.9 and was 5.3 points above its level of a year ago.
Up in 12 of the last 16 months, the Small Business Optimism Index edged up to near December’s eight-plus-year high (highest since October 2006), ticking up 0.1 point in February to 98.0, and was 6.6 points above its level of a year ago. Even with the slight February increase, the Index hovered just below readings that have normally accompanied an expansion and below its pre-recession average of 100 from 1973 through 2007. NFIB Chief Economist said, “In spite of slow economic activity and awful weather in a lot of the country, small business owners are finding reasons to hire and spend which is great news. Of the ten components, owners reporting hard-to-fill job openings was the largest gain increasing three points to a 29 percent which is a nine year high. Large firms have been powering the economic recovery since the Great Recession, but that may be shifting to the small business sector. February’s data suggests there are fundamental domestic economic currents leading business owners to add workers and these should bubble up in the official statistics and support stronger growth in domestic output.”