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Economy Cools in Fourth Quarter, But Consumer Spending Robust

Q4 GDP up 2.6% 2:02

U.S. economic growth slowed sharply in the fourth quarter as weak business spending and a wider trade deficit offset the fastest pace of consumer spending since 2006. Gross domestic product expanded at a 2.6 percent annual pace after the third quarter's spectacular 5 percent rate, the Commerce Department said in its first GDP snapshot on Friday.

The slowdown, which follows two back-to-back quarters of very strong growth, is likely to be short-lived given the enormous tailwind from lower gasoline prices. Most economists believe fundamentals in the United States are strong enough to cushion the blow on growth from weakening overseas economies. Even with the moderation in the fourth quarter, growth remained above the 2.5 percent pace, which is considered to be the economy's potential. Economists had expected the economy to expand at a 3 percent rate in the fourth quarter.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, advanced at a 4.3 percent pace in the fourth quarter—the fastest since the first quarter of 2006 and an acceleration from the third quarter's 3.2 percent pace.

For all of 2014, the economy grew 2.4 percent compared to 2.2 percent in 2013. The report came two days after the Federal Reserve said the economy was expanding at a "solid pace," an upgraded assessment that keeps it on track to start raising interest rates this year.

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-- Reuters