Economic activity in the world’s largest economy has continued to grow – that’s the good news. The bad news is that the rate of expansion has slowed dramatically over the level in Q3. The US economy managed expansion of 0.7% in Q4 over the same period in 2014, but this is down sharply on the comparable figure for Q3 when the economy managed a 2% expansion on its GDP.
The dominant term in the US economy is domestic consumption which accounts for 70% or so of the nation’s output. A key component of this is consumer spending and the US Commerce Department has attributed part of the slowdown to a reduction in consumer spending.
Another factor which has been blamed for the slowdown in economic activity is the relatively high price of the US Dollar which has acted as a drag on US exports which have become dearer in importing markets. Equally, the turmoil in the oil sector (and other commodity prices) has led to a reduction in investment in the oil exploration sector and mining. Investment on exploration, wells and associated materials was down by 38.7% in the quarter – having already taken a big hit in Q3 where the investment dropped by almost half (47%). The weak oil price has made exploitation of some reserves (notably shale oil from fracking) less economically viable and there is a reduced appetite for further exploration with a glut of oil on the market, a factor exacerbated by the return of Iran to legitimate oil trading. Taken across the full year, investment in the sector fell by more than a third (35%) which was the biggest decline seen in nearly thirty years.
Over the course of 2015, the US economy grew by 2.4%, a level that analysts believe will eventually be maintained this year. However, the data is being seen as making a further hike in US interest rates as unlikely in the near term since global demand remains weak and any rate rise would move an already strong Dollar still higher.