Consumer spending boosted 4Q growth

Consumer spending boosted economic growth during the final three months of the year to a faster pace than initially reported.

The U.S. economy expanded at a modest 1.4 percent annual rate in the October–December quarter, which is stronger than the 1 percent estimated last month, according to the third and final estimate released by the Commerce Department on Friday.

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The pick up in growth, which is still slower than the 2 percent level in the July–September period, reflects a mixture of news — better consumer spending and an economy still fending off global headwinds from a stronger dollar to plunging energy prices. 

Jason FurmanJason FurmanThe Fed needs to articulate its framework for inflation Biden signals tough stance on tech with antitrust picks GOP seeks to make Biden synonymous with inflation MORE, chairman of the Council of Economic Advisers, said that “weaker foreign growth continued to weigh on economic growth in the fourth quarter, underscoring the importance of policies that open our exports to new markets and promote strong domestic demand.”

“There is more work to do, and the president is committed to policies that will boost our long-run growth and living standards, including policies to support innovation and investments in infrastructure and job training,” Furman said. 

President Obama and his Cabinet are urging Congress to pass the 12-nation Trans-Pacific Partnership agreement this year, which they say will boost U.S. growth and put the nation in the driver's seat of global trade.

Consumer spending, which accounts for about 70 percent of the economy, rose 2.4 percent during the final three months of the year, adding 1.7 percentage points to growth. That was faster than the 2 percent initially estimated. 

"Consumer spending is a big positive thanks to job and income gains and low energy prices," said Gus Faucher, PNC's deputy chief economist.

Employers added 242,000 in February and the unemployment rate was unchanged at 4.9 percent. The next report is set for release on April 1.

Housing was another positive in the fourth quarter, with residential construction rising more than 10 percent.

"Housing is also adding to growth as it continues to recover from the Great Recession, in part because of very low mortgage rates," Faucher said. 

Faucher said that the U.S. economy is growing at a 2 to 2.25 percent annual rate, and growth should hold at that level for the January–March quarter.

Trade is still a drag on the economy but exports were a little stronger than previously reported at the end of last year. Exports fell at a 2 percent rate, which was better than the previously reported 2.7 percent drop. 

U.S. businesses shipping their products overseas are still facing a strong dollar, which makes their goods more expensive in foreign markets.

Overall, PNC is forecasting growth of 2.1 percent for all of 2016, with job growth of around 170,000 per month.

Steady job creation is expected to lead to full employment by this summer, which economists expect will lead to bigger paychecks for U.S. workers.