U.S. GDP Increases 3.2% in 4th Quarter

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Ever since the government shutdown occurred in October last year, economists and consumers alike have been worried about the future state of the United States economy. Thanks to the latest reports from the Commerce Department, however, those fears should be allayed.

During the 4th quarter last year, the GDP of the US rose 3.2%. While this figure is down from the 3rd quarter, which reported a 4.1% increase, it is significantly higher than growth earlier in 2013. For the entirety of 2013, the GDP only grew 1.9%, down from 2012 in which the measured growth was 2.8%. The initial decline earlier in the year was most likely the result of increased taxes and a tightened budget for federal spending.

Along with the government shutdown, many people were worried that the economy was being artificially inflated through the Federal Reserve's bond-buying program. Fortunately, the GDP report from the Commerce Department shows that that was not necessarily the case.

Consumers and businesses were what spurred the 4th quarter growth. Consumer spending increased 3.3% over the holidays, up from a 2% increase in the 3rd quarter. This 3.3% increase marks the largest increase in consumer spending in the last 3 years.

Businesses invested much more money into equipment, increasing their spending 7% in this department, while also increasing their stock inventories in anticipation of continued increased sales. If sales do not keep up with their current rates, however, these massive inventories could slow GDP growth in the 1st quarter of this year.

A surprising contributor to GDP growth was an increasing number of US exports, which grew 11.4% in the 4th quarter. Imports showed a very minimal increase, meaning the US is finally making headway in its trade deficit.

The biggest deductions came from the government shutdown and the housing market. The government shutdown reduced federal expenditures by 12.6%, leading to a 0.3% reduction in the overall GDP. (Lessened overall government spending reduced the 4th quarter GDP a total of 0.9%.) At the same time, the residential housing market declined 0.3%, marking the first decline for housing in the GDP since 2010.

The biggest worry still, though, is the lack of job creation. While official unemployment rates currently sit at 6.7%, the majority of the decline in unemployment claims has come from those who have completely dropped out of the job market. The last report for weekly unemployment claims showed a 19,000 claim increase, the highest number in a month.

“Everybody agrees that with each progressive quarter and year, it is getting better. But without a meaningful increase in employment, it makes it difficult to power strong growth in the future,” stated Guy Berger, a US economist at RBS.

Luckily, the new Chair of the Federal Reserve just happens to be an expert on unemployment. Let's hope Janet Yellen can help the US GDP and employment rates continue their upward trends.

Image via WhiteHouse.gov