Ahead of the Bell: US Economy-GDP

US economy likely showed gain in fourth quarter, helped by strong consumer spending

Associated Press
US economy accelerates and helps lift Dow to 18K
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FILE - In this Aug. 26, 2014 file photo, a construction worker takes in the view from the communication rings on top of One World Trade Center in New York. The Commerce Department issues its third and final estimate of how fast the U.S. economy grew in the July-September quarter on Tuesday, Dec. 23, 2014. (AP Photo/Seth Wenig, File)

WASHINGTON (AP) -- The Commerce Department issues its first of three estimates of how fast the U.S. economy grew in the October-December quarter. The report will be released at 8:30 a.m. EST Friday.

SOLID GROWTH: The forecast is that the overall economy, as measured by the gross domestic product, grew at an annual rate of 3.3 percent in the fourth quarter, according to a survey of economists by data firm FactSet.

WORLD LEADER. Growth at that rate would continue to outpace other big economies around the world. The expectation is that growth will continue at a solid pace in 2015. In fact, many economists believe growth this year will be the strongest in at least a decade.

Growth at 3.3 percent rate in the fourth quarter would be a slowdown from a 5 percent growth rate in the July-September quarter. That had been the fastest quarterly growth rate since 2003.

But activity in the summer was boosted by a number of factors that are expected to provide less support in the final quarter. Government spending is expected to slow after a big surge in defense spending in the summer and business investment spending may have cooled, in part reflecting cutbacks in oil exploration.

Last week, the International Monetary Fund cut its outlook for global growth over the next two years, warning that weakness in most major economies will trump lower oil prices. But the IMF increased its outlook for the U.S. economy, pegging growth this year at 3.6 percent. If that forecast comes true, it would mark the fastest annual U.S. growth in over a decade, since the economy expanded 3.8 percent in 2004.

That would mark a sharp acceleration after a string of sub-par years in which the economy grew at just over 2 percent. That weakness reflected the struggle the country faced in pulling out of the 2007-2009 Great Recession, the worst downturn since the 1930s.

Forecasters say the U.S. economy at long last has turned the corner with solid job growth and plunging gasoline prices combining to boost consumer spending, which accounts for two-thirds of economic output.

"It took us awhile to get here, but I think the economy is finally off and running," said Mark Zandi, chief economist at Moody's Analytics. "We are seeing a number of positive developments. Businesses are hiring aggressively and the big drop in gas prices means that people have more money to spend on other items."

Global oil prices have fallen by nearly 60 percent in just seven months with the nationwide average for gasoline now around $2 per gallon.

That decline translates into a savings for consumers of about $175 billion, Zandi said. "A big part of growth this year will be people spending their gas savings," he said.

The Federal Reserve on Wednesday took note of the better economic conditions while promising to remain "patient" in deciding when it is time to begin raising interest rates. A key Fed rate has been at a record low near zero for six years.

The central bank has leeway to be patient because the weaker global economy has helped push up the value of the dollar against other countries and gasoline prices are plunging. Both developments are helping to hold down inflation, which was already low.

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