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Slower US growth in the fourth quarter is actually a really good sign

AP Photo/Nam Y. Huh
The US economy steamed forward in the fourth quarter.
This article is more than 2 years old.

The US economy grew slower than first thought in the fourth quarter.

A revision to the GDP numbers released today shows that the US economy grew at an annualized rate of 2.2% in the last three months of 2014, slower than the 2.6% pace originally reported. Here’s an updated look at US growth over the last few years, with today’s numbers.

But the slower pace of growth actually might be good news: One of the key reasons growth was revised lower was company inventories were smaller than first thought in the fourth quarter. That could signal slightly stronger growth at the start of 2015, as companies stocked up for the American consuming public.

Moreover, imports rose more than first expected, resulting in a larger trade deficit, which in the calculus of GDP actually subtracts from growth. But that also suggests that American consumers are gaining strength. Consumer spending continued to rise at a 4.2% clip in the fourth quarter, which is its fastest pace in years.

Data out yesterday showed American consumers got their best inflation-adjusted boost to weekly earnings in years this January, thanks to plummeting oil prices, slight wage increases and rising hours worked. And since consumers are the major driver of the US economy, that’s a very good sign.

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