The economy grew 0.7% in the fourth quarter of 2015 based on the preliminary announcement by the Bureau of Economic Analysis. Economic growth for the year matched the 2014 rate of 2.4%. The unemployment rate fell to 4.9%, which now matches the Fed’s estimate of the long range full employment rate. The labor market is strong overall with healthy job gains averaging over 200,000 per month. The strength of the labor market appears to be ahead of the rest of the economy as production remains soft and the capacity utilization rate is 3.6% below the long run average. Personal income is improving and consumer spending is the only real driver of growth with dormant private investment, slowing government spending, and a chronic trade deficit. Wages and salaries are improving but at a modest rate. The loss of wealth due to the declining equity market will likely be a drag on spending in the coming quarters.
The U.S. economy expanded at a 2.0% rate in the third quarter, slower than the prior estimate of 2.1%. The downward revision was the outcome of a larger trade deficit stemming from a strong U.S. Dollar, weak global demand and falling commodity prices. Volatile business inventories reduced more than expected, resulting in a lower GDP growth. The fourth quarter is expected to grow 1.5%.