The U.S. economy grew in the final quarter of 2014, but at a slower pace. A sizable reduction in national defense spending and weakening exports from the rising dollar were key reasons for the slower expansion. Despite hitting the speed bump there is sufficient economic momentum for the economy to move ahead and easily avoid recession in 2015. Job creations will continue.
Specifically, GDP in the fourth quarter grew at 2.6 percent (annualized rate) after the robust rates near 5 percent in the prior two quarters. The first quarter had been negative. GDP for all of 2014 – over four quarters – grew by 2.4 percent.
The historical average GDP growth is right around 3 percent. Anything under that mark is considered subpar and anything above robust. The last time GDP grew above 3 percent for the whole year (and not just for one or two quarters) was in 2005. One can say the U.S. economy has been underperforming for nine consecutive years. The average over these nine years was 1.4 percent. Over the recent five years (after the Great Recession) the average was 2.2 percent.
As to the most recent quarter, consumers opened their wallets with spending rising at 4.3 percent – the best growth in nearly a decade. The job creations and the extra money not spent at the gas pumps are helping. Business spending was soft, rising by only 2.3 percent (after 9.5 percent and 7.7 percent of the prior two quarters.) National defense spending collapsed, falling 13 percent, though after a strong rise in the prior quarter. Imports grew by 9 percent while exports grew by only 3 percent. That’s because other major economies are not growing and are unable to buy U.S. goods. This widening trade deficit hurts overall U.S. GDP growth.
The 2015 forecast is for GDP to expand at near 3 percent. A big positive to economic growth this year will be the real estate sector. Both residential and commercial real estate construction are primed to rise. Low housing inventory and falling commercial vacancy rates will induce more construction and help the economy get back to normal growth rate.
Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.