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 4.4 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 imports increased sharply. Improvements in business activity have been widespread as industrial production has increased in 52 of the last 68 months to a near record high, the service sector has expanded for 62 straight months, and durable goods orders have increased year-over-year in 53 of the last 62 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 third 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 4.4 percent as plunging gasoline prices and strong job growth bolstered Americans' confidence. But federal government spending declined 7.3 percent as defense outlays tumbled after rising sharply in the third quarter. Business investment in equipment increased just 0.6 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 were unchanged at 4.5 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 19 months, the Industrial Production Index edged up to near November’s record high, increasing 0.1 point in February to 105.8 and was up 3.5 points from a year ago. Additionally, the Index has risen in 52 of the last 68 months since bottoming at 83.5 in June 2009.
New orders for manufactured durable goods declined for the fifth time in the last seven months, decreasing 1.4 percent in February, after advancing 1.9 percent the previous month. Still, new orders for manufactured durable goods were up 0.5 percent from a year ago and have advanced year-over-year in 53 of the last 62 months. Excluding the volatile transportation component (aircraft orders), durable goods orders decreased sequentially for just the 7th time in the last 18 months, declining 0.4 percent in February.
The service sector grew (exceeding 50 on the ISM Non-Manufacturing Index) for the 62nd month in a row, with the pace of growth decelerated for the first time in three months. In March, the Index edged down 0.4 points to register at 56.5 but was 3.4 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.”