GDP Unexpectedly Slows to 2.6%

January 30, 2015 2 Comments

So much for the fastest economic growth since the late 1990s. The following financial quarter was revised upward to 5%, thanks to the addition boost in health care expenditures (also, thanks to the individual mandate of Obamacare). The market consensus was for 3.0% annualized growth, but instead what we got was 2.6% economic growth for Q4 2014. This makes the annual GDP growth rate of 2.4%, which is slightly higher than the 2013 growth rate of 2.2%.

Here is a breakdown, for your viewing pleasure:

Q4 2014 GDP

The biggest detriment to GDP growth this quarter was imports (its usually imports, considering the large trade deficit), as imports grew 8.9%, and contributed -1.39 to the 2.6% GDP figure. This is most likely due to the dramatic decline in oil prices that the economy has been experiencing for the last few months. With record about of oil production, the United States has become a net exporter of crude oil and petroleum products. Once prices for crude oil plunged, this took a large chuck out of net value of exported Petro products. Simply put, exporters cannot make as much money selling petroleum products at their inflated prices once the price for crude falls.

As always, the largest portion of that growth came in the form of consumer spending, as personal consumption grew 4.3% last quarter. So, not only did the surge in GDP lead by consumer spending fail to happen, but the large spike in consumer spending occurred too early. It was originally expected to happen in Q1 2015, but instead that spike happened last financial quarter. As a result, Q1 2015 are being revised downward by market analysis.

The biggest kicker isn’t the fact that consumer spending failed to increase GDP. I can give you a couple of guesses as to what the largest portion of consumer spending was for Q4, but you’re probably only going to need one.

Personal Spending Contributions

Yes, for the second quarter in a row, Health Care service made the largest contribution to personal consumption expenditures. We’ve had increases in certain areas and declines in others (as expected), but the only consistent component seems to be Health Care expenditures.

So this is what Americans spent their $144 dollar gas savings on: more health care, courtesy of the Affordable Care Act.

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