(Bloomberg) — The economy in the U.S. expanded at a slower pace than forecast in the fourth quarter as cooling business investment, a slump in government outlays and a widening trade gap took some of the luster off the biggest gain in consumer spending in almost nine years.
Gross domestic product grew at a 2.6 percent annualized rate after a 5 percent gain in the third quarter that was the fastest since 2003, Commerce Department figures showed Thursday in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 3 percent advance. Consumer spending, which accounts for almost 70 percent of the economy, climbed 4.3 percent, more than projected.
Swept up by the cheapest gasoline in years and the biggest employment increase since 1999, households are gaining the confidence to spend more freely, which will bolster the odds the world’s biggest economy can escape a global slowdown unscathed. Engaged consumers will help ensure that most American employers will look to expand, even as the decline in oil hurts companies such as Caterpillar Inc.
The expansion last quarter was “all about a solid consumer performance,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the fourth-quarter growth rate. “Overall, the number has returned to trend growth after a couple of really hot quarters.”
Futures on the Standard & Poor’s 500 Index stayed lower after the reports, falling 1.1 percent to 1,996.7 at 8:52 a.m. in New York. The yield on the 10-year Treasury note was also lower at 1.68 percent compared with 1.75 percent on Thursday.
GDP estimates in the Bloomberg survey of economists for fourth-quarter GDP, the value of all goods and services produced, ranged from 1.8 percent to 3.6 percent. The GDP estimate is the first of three for the quarter, with the other releases scheduled for February and March when more information becomes available.
The gain in household consumption was the biggest since the first quarter of 2006 and compared with a 4 percent median forecast in the Bloomberg survey. It followed a 3.2 percent advance from July through September. Purchases added 2.9 percentage points to growth.
For all of 2014, the U.S. economy grew 2.4 percent from the year before, the most in four years and following a 2.2 percent advance in 2013. Consumption climbed 2.5 percent, the most since 2006.
For the fourth quarter, fixed business investment increased at a 2.3 percent annualized rate, compared with a 7.7 percent gain in the third quarter. Corporate spending on equipment dropped at a 1.9 percent pace, the biggest decline since the second quarter of 2009.
The trade deficit widened to $471.5 billion, as imports climbed three times faster than exports. The gap subtracted 1 percentage point from GDP.
A surge in inventories helped make up for some of the shortfall in trade. Stockpiles grew at a $113.1 billion rate, an increase of $30.9 billion from the third quarter, adding 0.8 percentage points to growth.
The GDP report also showed government spending decreased at a 2.2 percent pace, subtracting 0.4 percentage point to overall growth as defense spending slumped by the most in two years.