Consumer Insights

Consumer Spending Fuels GDP Growth

The United States economy managed to eke out a gain that was faster than estimated in preliminary results, with the consumer, yet again, acting as a prime growth engine, buffering the nation from continued global macro-weakness.

Bloomberg reported that the revised 1.4 percent boost in gross domestic product, as evidenced in the fourth quarter, compared favorably with the previous 1 percent estimate but marked a slowdown from the 2 percent logged in the third quarter. The numbers were released by the U.S. Commerce Department this past Friday (March 25). The revised number also beat the consensus of economists that were surveyed by the newswire looking for 1 percent growth.

One bit of troubling data, perhaps: Corporate profits, as measured by pre-tax profits, slipped 7.8 percent, the most in seven years, a drop exacerbated by low commodity prices and a general downtrend in investment by companies wary of macro-concerns.

Conversely, here in the U.S., employment is high, and inflation is relatively low, with those two tailwinds in place to boost consumer spending. As has been widely noted, the U.S. consumer is estimated to account for as much as 70 percent of the economy, and household spending in the latest quarter was up 2.4 percent, with a previously estimated 2 percent rate in place. Personal consumption accounted for 1.7 percentage points of growth.

In an interview with the newswire, Gus Faucher, an economist with PNC Financial Services Group, said: “It’s really U.S. consumers who are powering the global economy forward at this point. There are pressures on businesses in terms of the stronger dollar, rising labor costs and slowing productivity growth.”

Inventories remained a drag, taking away 0.2 percentage points from growth, which came in worse than the estimates of 0.14 points of drag.

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