Economic growth slows to 0.7 percent in Q4

Economic growth slows to 0.7 percent in Q4

The U.S. economy's expansion slowed sharply in the final three months of last year with global turbulence exports cutting into exports and a reduction in business investment.

The Commerce Department said Friday that economic growth declined to an anemic 0.7 percent annual rate in the October to December quarter, down from 2 percent in the third quarter, fueling concerns about the strength of the nation’s steady expansion.

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Stronger growth is expected for the first three months of the year but a global financial sell off, falling energy prices and questions about the durability of China’s expansion could weigh on expectations. 

Jason FurmanJason FurmanTrillion-dollar deficits as far as the eye can see, and hardly a voice of caution to be heard Billionaires paid lower tax rate than working class for first time in US history: study Economy adds 130K jobs in August, falling below expectations MORE, chairman of the Council of Economic Advisers, said that "weaker foreign growth continued to weigh on domestic output in the fourth quarter, underscoring the importance of policies that open our exports to new markets while promoting strong domestic demand.”

Furman said that President Obama "is committed to policies that will boost our long-run growth and help ensure everyone shares in it."

The president is urging Congress to pass the Trans-Pacific Partnership trade agreement this year. 

House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyDemocrats, GOP spar over Treasury rules on Trump tax law Ex-HHS chief threatens to vote 'no' on surprise medical billing measure Bipartisan Ways and Means leaders unveil measure to stop surprise medical bills MORE (R-Texas) said that the 0.7 percent rate of growth "is not good enough and Washington should not pretend that it is."

"We have to move forward now with a bold agenda that will spur investment, job creation and wage growth," Brady said.

Overall, the economy expanded at a 2.4 percent rate last year, which was the same as 2014. This year's forecast is for 2.3 percent growth. 

The Federal Reserve held interest rates steady on Wednesday saying it would be “closely monitoring global economic and financial developments.”

Last year got off to a rough start after a cold winter and a West Coast ports strike combined to knock growth down to a 0.6 percent annual rate in the January-March quarter, but the economy rebounded. 

The latest report showed that consumer spending rose at a 2.2 percent annual rate in the fourth quarter but was slower than the 3 percent rate in the July-September period.

Gus Faucher, PNC's senior economist, said that Friday's number matched expectations with the downturn in energy development and production — rapidly falling oil prices — and the slowdowns in inventories and exports. 

Consumer spending increased 2.2 percent at an annual rate last quarter, adding 1.5 percentage points to growth, but was slower than the 3 percent pace in the third quarter.

Faucher said consumer spending and housing remained strong and were bolstered by steady job gains last year rising wages and low interest rates.

The economy added 2.65 million jobs last year, slower than the 3.1 million in 2014, which was the strongest year since 1999.

Job gains averaged 284,000 for the final three months of the year.

Friday's report showed that business investment fell at a 1.8 percent annual rate, the first decline in more than three years, and down from a 2.6 percent pick up in the third quarter. 

Firms also cut back their inventories, cutting 0.5 percentage point from growth in the fourth quarter.

"The drag from inventories will lift in the near term as businesses get their stocks in line with demand," Faucher said.

Trade also weighed on the fourth-quarter figure — exports fell at a 2.5 percent annual rate, while imports increased 1.1 percent — subtracting 0.5 percentage points from growth. 

"Trade will remain a significant drag on growth throughout 2016 with the strong dollar and weak overseas economies," Faucher said.

"The hit to domestic investment from the downturn in energy prices and production will gradually lift over the course of this year as energy prices stabilize and production adjusts."

This post was last updated at 10 a.m.