Investor's Business Daily: GDP Growth Slows, But Consumers Finally Stage Comeback

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January 30, 2015

GDP Growth Slows, But Consumers Finally Stage Comeback

By ANDREA RIQUIER
INVESTOR'S BUSINESS DAILY

Economic growth decelerated sharply in the fourth quarter, but consumers spent more briskly than
at any time in nearly a decade as wages firmed a signal that more durable growth may lie
ahead.
GDP grew at a 2.6% annual rate in Q4, the Commerce Department said Friday, a steeperthan-expected slowdown from Q3's 5% expansion, the best since 2003. Real final sales growth,
which excludes inventory changes, cooled to 1.8%.
Nonresidential fixed investment was up 1.9% in Q4 following 9% and 10% growth in Q2 and Q3.
Residential investment picked up to a 4% pace. Other areas, such as government spending,
turned negative.
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But consumer spending, two-thirds of overall economic activity, rose at an annualized 4.3%, the
best since early 2006. Many analysts see that as a positive signal for future growth.

According to a separate release, wages rose 2.1% vs. year-ago levels in Q4, the same as in Q3. But that was up from 1.7% and 1.8% in Q1 and Q2.
Private industry workers saw wage gains accelerate in every quarter in 2014.
Wage growth has lagged in recent years, a possible sign of underlying job market weakness. Sluggish wages are also seen holding back spending on
everything from clothing to homes.

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Investor's Business Daily: GDP Growth Slows, But Consumers Finally Stage Comeback

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December retail sales sank 0.9% and November gains were revised down, even as consumer confidence has soared to pre-recession levels while
plunging energy prices leave shoppers with extra money.
"This really should be the year of the consumer, with wages and salaries starting to grow at a faster pace," said Ameriprise Financial senior economist
Russell Price. "There's a lot of good momentum in the economy."
Price expects a "slow and steady" pace for wage growth as hiring continues at a solid clip. He envisions fewer blockbusters like November and December,
when there were 353,000 and 252,000 hires, but he sees higher-quality jobs than the low-wage roles that dominated payroll gains for most of the recovery.
Joseph Lake, U.S. economist for the Economist Intelligence Unit, wrote in a research note: "The stock market gains of 2013 largely benefited the wealthy,
and the labor market gains of 2014 helped the unemployed. Higher salaries in 2015 would benefit America's neglected middle class."
Headwinds remain. After a big rise in Q4, the dollar has appreciated even faster in 2015. That will likely further dent exports, which were a drag on Q4
GDP. Ultralow energy prices will hurt pockets of the U.S. economy. Oil giants like Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) are slashing
billions of dollars from their budgets.
Oil service firms like Schlumberger (NYSE:SLB) and Baker Hughes (NYSE:BHI) are laying off thousands of workers.

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