Initial data, subject to review as more comprehensive information feeds through, suggests that the US economy grew by 2.6%. Analyst had been anticipating that Q4 growth should have come in at 3%, so growth was slower than anticipated. In common with the UK economy, the US rate of expansion slowed over the final quarter of 2014, slowing from 4.6% in Q2 and 5% in Q3. The full year growth for the US economy is estimated at 2.4% after a contraction of 2.9% in the first quarter which was widely attributed to harsh winter conditions.
The weaker than anticipated growth occurred despite a 4.3% increase in consumer spending during the quarter which marks the strongest growth seen in consumer spending for almost 9 years. Approximately 70% of US output is consumed within the domestic market. The increase in consumer spending is being credited, in part, to the declining oil price which feeds through into cheaper fuel and energy costs. The 60% or so decline in the oil price means that Americans are paying approximately $2 per gallon of fuel – a fraction of the price in Europe where it is heavily taxed. A US gallon is equivalent to 3.8 litres; in the UK, prices are hovering above the £1 per litre level. The US price has fallen from $3.28 at this time last year and the saving is believed to be worth a staggering $175 billion to American consumers which is available for other purchases (savings accounts attract very poor interest currently, of course).
The US Federal Reserve characterised the rate of expansion of the US economy as a “solid pace”. It intends to maintain interest rate policy at its near zero level for the foreseeable future, with US inflation well below the 2% target level – it was recorded at 0.8% in December 2014.