US econ­omy likely hit a speed bump in 4th quar­ter

The Pak Banker - - 6BUSINESS -

U.S. eco­nomic growth likely braked sharply in the fourth quar­ter as busi­nesses dou­bled down on ef­forts to re­duce an in­ven­tory glut and un­sea­son­ably mild weather cut into con­sumer spend­ing on util­i­ties and ap­parel.

Gross do­mes­tic prod­uct prob­a­bly rose at a 0.8 per­cent an­nual rate, ac­cord­ing to a Reuters sur­vey of econ­o­mists, also as a strong dol­lar and tepid global de­mand hurt ex­ports, and lower oil prices con­tin­ued to un­der­cut in­vest­ment by en­ergy firms.

The econ­omy grew at a 2 per­cent pace in the third quar­ter. Risks to the fourth-quar­ter GDP fore­cast are tilted to the down­side af­ter a re­port on Thurs­day showed a col­lapse in new or­ders for long-last­ing man­u­fac­tured goods in De­cem­ber.

But some of the im­ped­i­ments to growth - in­ven­to­ries and mild tem- per­a­tures - are tem­po­rary and the econ­omy is ex­pected to snap back in the first quar­ter. Nev­er­the­less, the U.S. Com­merce Depart­ment's ad­vance fourth-quar­ter GDP re­port, to be re­leased on Fri­day at 08:30 a.m. could spark a fresh wave of sell­ing on the stock mar­ket, which has been roiled by fears of ane­mic growth in both the United States and China.

"Given the state of fi­nan­cial mar­kets, fourth-quar­ter GDP could fuel fears that the ex­pan­sion is un­rav­el­ing. This would be mis­guided as in­ven­to­ries will be a sig­nif­i­cant weight and trade will also be drag," said Ryan Sweet, se­nior econ­o­mist at Moody's An­a­lyt­ics in Westch­ester, Penn­syl­va­nia.

The Fed­eral Re­serve on Wed­nes­day ac­knowl­edged that growth "slowed late last year," but also noted that "la­bor mar­ket con­di­tions im­proved fur­ther." The Fed, the U.S. cen­tral bank, raised in­ter­est rates in De­cem­ber for the first time since June 2006.

Though the Fed has not ruled an­other hike in March, fi­nan­cial mar­kets volatil­ity could see that de­layed un­til June.

"We re­main un­con­vinced that (the slow­down) will de­velop into a more se­ri­ous eco­nomic down­turn," said Paul Ash­worth, chief U.S. econ­o­mist at Cap­i­tal Eco­nom­ics in Toronto.

"We have al­ready seen a num­ber of tem­po­rary dips in GDP growth dur­ing this ex­pan­sion. Nev­er­the­less, each time GDP growth ac­cel­er­ated again in the fol­low­ing quar­ter and there is no rea­son to be­lieve this time will be any dif­fer­ent."

In the fourth quar­ter, busi­nesses are fore­cast to have ac­cu­mu­lated be­tween $55 bil­lion and $65.9 bil­lion worth of in­ven­tory, down from $85.5 bil­lion in the third quar­ter. Econ­o­mists es­ti­mate the small in­ven- tory build will slice off at least one per­cent­age point from the first es­ti­mate of fourth-quar­ter GDP growth.

Con­sumer spend­ing, which ac­counts for more than two-thirds of U.S. eco­nomic ac­tiv­ity, is fore­cast to have in­creased at around a 1.7 per­cent rate. That would be a big step­down from the 3.0 per­cent pace notched in the third quar­ter.

Un­usu­ally mild weather hurt sales of win­ter ap­parel in De­cem­ber and un­der­mined de­mand for heat­ing through the quar­ter.

With gaso­line prices around $2 per gal­lon, a tight­en­ing la­bor mar­ket grad­u­ally lift­ing wages and house prices boost­ing house­hold wealth, econ­o­mists be­lieve the slow­down in con­sumer spend­ing will be short­lived. "The U.S. con­sumer is still in a good po­si­tion to ac­cel­er­ate spend­ing in the quar­ters ahead," said Scott An­der­son, chief econ­o­mist at Bank of the West in San Fran­cisco.

The dol­lar, which has gained 11 per­cent against the cur­ren­cies of the United States' trad­ing part­ners since last Jan­uary, likely re­mained a drag on ex­ports, lead­ing to a trade deficit that prob­a­bly sub­tracted about half a per­cent­age point from GDP growth in the fourth quar­ter.

The down­turn in en­ergy sec­tor in­vest­ment prob­a­bly put more pres­sure on busi­ness spend­ing on non­res­i­den­tial struc­tures. Oil prices have dropped more than 60 per­cent since mid-2014, forc­ing oil field com­pa­nies such as Sch­lum­berger (SLB.N) and Hal­libur­ton (HAL.N) to slash their cap­i­tal spend­ing bud­gets.

With con­sumer spend­ing soft­en­ing, in­fla­tion likely re­treated in the fourth quar­ter. A price in­dex in the GDP re­port that strips out food and en­ergy costs is ex­pected to have in­creased at a 0.7 per­cent rate, slow­ing from a 1.3 per­cent pace in the third quar­ter.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.