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The US Economy Has a Hiccup—Hopefully Just One

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Dec. 4 2020, Updated 10:52 a.m. ET

Economic growth dialed down in 4Q14

The US economy is taking a breather. The second estimate from the Bureau of Economic Analysis (or BEA) showed that gross domestic product (or GDP) growth for the US economy slowed to 2.2% in the fourth quarter of 2014 over the corresponding period in 2013. The advance estimate, released in January, had pegged the pace of US economic growth at 2.6%.

[marketrealist-chart id=317021]

Higher imports and a slowdown in business inventories were primarily responsible for the downward revision in growth. Exports, which could have softened the impact of rising imports, were held back by a strong dollar, which made US products and services more expensive in the international markets. Exporters like Proctor & Gamble (PG), Apple (AAPL, and Microsoft (MSFT) were affected by the rising greenback.

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Could growth slow again in 1Q15?

The third estimate of 4Q14 GDP (gross domestic product) has yet to be released. There are indications that the figure may be revised further down from its second estimate.

But, leaving aside the last quarter of 2014, there are already concerns that the first quarter real GDP growth for 2015 may slow down. Though the FOMC (Federal Open Market Committee) expects the underlying strength in the economy to be strong, Janet Yellen, the Fed Chief, said that real GDP growth “appears to have slowed” in 1Q15.

The primary reason for this assessment has been low consumer spending. Crude oil prices, which had driven down gasoline prices up to January 2015, should have saved consumers money that they could spend elsewhere. However, retail sales have fallen for three consecutive months. In the latest reading, retail sales declined by 0.6% month-over-month in February, following an unrevised 0.8% decline in January 2015. The freezing weather was at least partly responsible for the fall in sales, given that online sales actually rose in February even as department store sales declined.

Policymakers are positive that GDP growth should rebound as job additions and low energy prices boost consumer spending going forward. This boost, if it comes through, will benefit investors in ETFs like the Consumer Discretionary Select Sector SPDR Fund (XLY) and the Consumer Staples Select Sector SPDR Fund (XLP).

In the next part of this series, let’s look at the Fed’s assessment of the labor market.

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