American Consumer Spending Cuts Fears of Slowdown

Fears of the effect of global economic slowdown on the American economy have been put to rest as consumer spending picked up in the fourth quarter of 2014 and remained strong in early 2015.

According to data released by the US Department of Commerce on Friday, the GDP increased at an annual rate of 2.2 percent in the last quarter powered by consumption expenditures, which increased by 4.2 percent in the fourth quarter.

“The consumer looks relatively solid,” Michael Carey, chief economist for North America at Credit Agricole CIB in New York told Bloomberg. “We’re looking at an increase in domestic demand, which is good because we’re one of the few economies out there that is growing relatively strongly.”

Improving job market and cheaper fuel have helped boost consumer spending, which makes for 70 percent of the economy. With wages and personal salaries increasing by $87.2 billion, a boost in personal income seems to be fueling the increase in consumer spending.

In the fourth quarter, the surge in consumer spend boosted imports by 10.1 percent, whereas, exports increased by 3.2 percent. The decreased import-export difference reduced the GDP growth by 1.1 percent.

Though the overall economic growth picture looks healthy, the American manufacturing industry seems to be having difficulty keeping up with the overall pace of growth. Chicago’s Institute for Supply Management business barometer went down to 45.8 from 59.4 reported the previous month, Bloomberg reported.

The big drop has reportedly been an outcome of labor fight resulting in work stoppage at the West Port and bad weather. The nine month long conflict led to stranding of merchandise on the Pacific, which eventually manufacturers had to divert through air and ports on East and Gulf coasts.

The West port slowdown reportedly cost retailers about $7 billion.