Growing optimism

Stolid Q4 US growth provides platform for 2015

US growth is nicely poised for 2015. A 2.6 per cent rate of expansion in the fourth quarter, according to the first official estimate released on Friday, and 2.4 per cent GDP growth for 2014 as a whole hardly represent a boom. But it's still a stronger story than most developed economies. With pay rising, confidence strong and inflation, interest rates and gasoline prices low, the upside remains promising.

The middle two periods of last year evinced growth rates of 4.6 per cent and 5 per cent respectively. But there was always going to be a bounce after an ugly 2.1 per cent pace of contraction in the first quarter. The last quarter was roughly in line with the full year, and is consistent with moderate if unspectacular expansion.

If consumer spending and business investment were the whole story, last quarter's growth rate would have been a more impressive 4 per cent. Weak net exports and reduced government spending knocked that down. Spending more on imports than the US economy receives from exports could continue if the dollar remains strong. Uncle Sam's belt is also expected to remain tight.

America's shoppers, though, offer more hope. An already firm 4.2 per cent annualised increase in consumption could have been better still, with energy-related prices in particular falling. Consumers may be waiting to make sure that cheaper gasoline is here to stay before boosting spending.

Rising wages may add to their spending power. Real disposable income jumped at an annualised rate of 3.7 per cent in the fourth quarter from the third. For the full year, the measure was up 3.1 per cent, after declining in 2013. Though the jobs report for December suggested otherwise, there are signs that pay may finally be pushing upward as the unemployment rate declines.

That all suggests pent-up growth potential, provided the US can avoid being dragged down by economic trouble abroad. Some of the pain overseas might have accounted for last quarter's lacklustre exports. But a patient Federal Reserve paired with happier consumers ought to keep the US engine humming - and maybe even accelerating.