The U.S. Economy Slowed to Just 0.7 Percent Growth in the Fourth Quarter

The Bureau of Economic Analysis said that the U.S. economy grew just 0.7 percent in the fourth quarter at the annual rate, decelerating from 3.9 percent and 2.0 percent growth in the prior two quarters, respectively. For the year as a whole, real GDP increased 2.4 percent in 2015, the same pace as observed in 2014. The preliminary data were pulled lower by weak business investment, inventory spending and net export figures, with consumer spending being one of the larger bright spots in the report. With that said, personal consumption expenditures rose an annualized 2.2 percent in the fourth quarter, easing from 3.0 percent growth in the third quarter. Consumer spending added 2.1 percent to real GDP in 2015, and in the fourth quarter, it added nearly 1.5 percentage points to the headline figure. This finding mostly mirrors decent but softer-than-desired retail spending activity seen at the end of the year, as Americans remain somewhat anxious about the economic outlook.

For manufacturers, these data continue to highlight the softness seen in the overall sector, with global headwinds and falling commodity prices challenging demand and production. On the trade front, goods exports were down 5.4 percent at the annual rate in the fourth quarter; whereas, goods imports eked out a gain of 0.6 percent. This reflects foreign exchange disadvantages and sluggish growth to key export markets, and as a result, net exports subtracted 0.47 percentage points from real GDP in this release. U.S.-manufactured goods exports declined by at least 6 percent year-to-date through November in 2015, and much of that decrease could be attributed to the strong U.S. dollar, which has appreciated more than 25 percent since June 2014 against major currencies.

Business investment was also negative in the fourth quarter, subtracting 0.41 percentage points from real GDP. Nonresidential fixed investment was off 1.8 percent at the annual rate for the quarter, its first decline since the third quarter of 2012, on reduced spending on structures and equipment. This was mostly offset, however, by strength on residential spending. Indeed, housing market data have tended to generally move in the right direction of late, with residential investment up by an annualized 8.1 percent in the fourth quarter. The largest drag on business investment came from inventory spending, which lowered real GDP by 0.45 percentage points. For the second straight quarter, firms have been more cautious in replenishing their inventories, particularly on worries about economic growth and on softer demand.

Overall, the U.S. economy remains stuck growing at a lethargic pace. Coming into 2015, manufacturers were hopeful that we were finally getting some traction in the economy, and yet, that never came to fruition. The current outlook is for real GDP to increase by 2 percent in 2016, and manufacturing activity has been clearly challenged by global headwinds. For instance, manufacturing production expanded just 0.8 percent year-over-year in December, and sentiment surveys indicate declining levels of activity at year’s end.

With this in mind, policymakers need to adopt an agenda that will enable broad-based growth, both for manufacturers and for the larger economy. The NAM has put together a policy roadmap that guides political candidates and voters alike on pro-manufacturing priorities “Competing to Win.” The platform document highlights policies that will help boost manufacturing competition and innovation in the U.S. through modernizing our tax code, opening up new markets, tapping into our energy renaissance, investing in infrastructure, reducing regulatory barriers and developing the workforce of the future.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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