US growth disappoints on slower consumer, business spending

The US economy expanded at a slower pace in the fourth quarter as households tempered spending and businesses cut back on capital investment and made further adjustments to inventories.

The outcome left Wall Street ready to open higher amid expectations that the US Federal Reserve would go slow on future interest rate hikes.

Gross domestic product rose at a 0.7 per cent annualised rate in the three months ended in December after a 2 per cent gain in the third quarter, US Commerce Department figures showed on Friday.

The advance was a shade below consensus forecasts.

Expansion has downshifted as producers contend with slowing markets abroad, the negative effect on exports from a stronger dollar and plunging oil prices that have caused drilling firms to retrench.

Consumers, enjoying the fruits of a robust labour market and cheaper fuel bills, will have to pick up the slack if growth is expected to get back on track. “The economy perhaps isn’t quite as strong as we thought it was - there’s clearly some very weak spots, but there’s a solid foundation to growth,” said Nariman Behravesh, chief economist at IHS in Lexington, Massachusetts.

Stars aligned

Even after the fourth-quarter slowdown, “the stars are aligned for consumer spending to return.”

Economists’ projections for GDP, the value of all goods and services produced, ranged from a 0.2 percent decline to a 1.7 percent increase.

US gross domestic product rose 0.7 percent in the fourth quarter, below the 0.8 per cent expected, as a strong dollar and tepid global demand hurt exports.

Intervention by central banks has become key to supporting turbulent markets roiled by slowing global economic growth. The Bank of Japan cut a key interest rate below zero on Friday to spur its flagging economy.

Although the Fed has not ruled out another rate hike in March, the current turmoil could force it to wait until June.

Investors across the globe are still reeling from one of the worst starts to a year as oil prices remain under pressure and fears of a China-led global slowdown grow.

US stocks have failed to sustain several rallies in 2016 and are yet to post gains for three days in a row. The S&P 500 has shed 7.4 per cent this year.

“We’re likely to settle in at these levels for a short time, at least until more news comes out probably in a month or so,” said Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis.

“Near term, I think it’s oil, earnings and technicals that are likely to drive the market.”

Earlier, markets were were surprised by a move into negative rates in Japan, with the Bank of Japan seeking to kickstart the Japanese economy.

Bloomberg/Reuters