Ahead of the Bell: US Economy-GDP

US economy expected to slow further in early 2015 but then post strong rebound

Associated Press
Ahead of the Bell: US Economy-GDP
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In this March 19, 2015 photo, a construction worker pulls his safety rope while working on the roof of an apartment complex being built in Spring, Texas. The Commerce Department releases fourth-quarter gross domestic product on Friday, March 27, 2015. (AP Photo/David J. Phillip)

WASHINGTON (AP) -- The government issues its third and final estimate of how fast the U.S. economy grew in the October-December quarter. The report will be released Friday at 8:30 a.m. Eastern.

GDP GROWTH: The expectation is that the economy, as measured by the gross domestic product, grew at an annual rate of 2.4 percent in the fourth quarter. That would be a slight upward revision from an estimate of 2.2 percent made a month ago but lower than the government's initial estimate of 2.6 percent.

SOFT PATCH: Economists believe that growth in the current January-March quarter slowed even more, to around 1.5 percent, in part because of winter storms. There is optimism that growth will accelerate in the second quarter and for the rest of the year.

Many economists believe that growth for all of 2015 could top 3 percent, which would be the fastest rate in a decade and would represent a significant acceleration from the sub-par growth of 2.2 percent for the first five years of the recovery.

The current expansion will mark its sixth anniversary in June, meaning it will have already lasted 14 months longer than the average expansion in the post-World War II period.

A slow moving recovery comes with benefits, too. More rapid recoveries often lead to overindulgences that can undue all that has been gained.

"This recovery has been disappointing in terms of growth so far but if you are looking for a silver lining, it is that the slow rate of growth has allowed the economy to avoid the kinds of excesses that can lead to over-building, over-lending or other problems," said Mark Zandi, chief economist at Moody's Analytics. "We are a long way from that."

Looking far into the future, Zandi said the current expansion may only be at the half-way point, meaning it could last another six years.

The longest recovery on record was the 10-year expansion that lasted from March 1991 to March 2001. But many economists believe this expansion could surpass that.

Part of Zandi's optimism stems from his view that with inflation currently so low, the Fed will be able to move gradually when it starts raising rates, something economists believe will occur later this year. And with the Fed's target rate at a record low near zero, it will be some time before rates are increased to the point where they slow borrowing activity and overall economic growth.

Many economists believe that at most, the Fed will move rates in two small quarter-point moves this year, leaving them below 1 percent at the end of 2015. That was the previous record low before the current six-year stretch of rates near zero.

Nariman Behravesh, chief economist at IHS Global Economics, thinks that growth will rebound to a solid 3.4 percent rate in the April-June quarter and remain strong for the rest of the year.

He believes that the job growth seen over the past year, the strongest in 17 years, will energize consumer spending, which accounts for 70 percent of the economy.

"Consumers are going to be the engine of growth for the U.S. economy this year," Behravesh said.

Behravesh believes that growth slowed in first three months of this year because of harsh weather and a West Coast port dispute that disrupted supply lines. Yet it won't be anything like last year when a series of storms combined with other factors to send the economy into a sharp contraction.

"We are going through a soft patch but it is nothing like what we saw a year ago," he said.

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