Economists expect US economy to strengthen after weak 4th quarter

January 30, 2016 at 12:00a.m.

Associated Press

WASHINGTON

The U.S. economy struggled to grow in the October-December quarter as consumer spending, business investment and exports slowed. Yet despite global weakness and shrunken oil and stock prices, many economists expect growth to accelerate on the strength of healthy job gains.

The economy grew at an annual rate of just 0.7 percent last quarter, less than half the 2 percent growth rate in the July-September period, the government said Friday. It was the worst showing since a severe winter slowed the economy, as measured by the gross domestic product, to a 0.6 percent annual growth rate in last year’s first quarter.

Though the slowdown late last year could renew doubts about the durability of the 61/2-year-old economic expansion, most analysts said they expected the slump to be short-lived.

“The weak growth is temporary,” said Nariman Behravesh, chief economist at IHS Global Insight. “This is not an early warning of something worse.”

Behravesh said two of the key negative factors last quarter – an effort by companies to pare an overhang of unsold goods and investment cutbacks by oil companies facing much lower energy prices – likely would diminish early this year. That would pave the way for decent annual growth of about 2.5 percent in the first half of 2016, Behravesh said.

Paul Ashworth, chief economist at Capital Economics, said he thinks GDP growth will rebound to an annual rate between 2.5 percent and 3 percent in the first six months of 2016 as further solid job growth fuels additional consumer spending. Consumer spending accounts for about 70 percent of economic activity.

Much of last quarter’s weakness reflected a slowdown in consumer spending, which grew at a 2.2 percent annual rate, compared with a 3 percent rate the previous quarter. Analysts said part of that weakness likely reflected a warmer-than-normal December, which reduced spending on winter clothing and utility bills.

Friday’s estimate of fourth-quarter growth was the first of three that the government will issue.

Besides consumer spending, exports were a source of weakness last quarter. That reflected in part a stronger dollar, which has made U.S. goods pricier and therefore less competitive overseas.