MercoPress. South Atlantic News Agency

Despite fourth quarter blip US economy fundamentals remain robust with strong tailwind

Even with the moderation in the fourth quarter, growth remained above the 2.5% pace, which is considered to be the US economy's potential.

US economic growth slowed sharply in the fourth quarter as weak business spending and a wider trade deficit offset the fastest pace of consumer spending since 2006. GDP expanded at a 2.6% annual pace after the third quarter's spectacular 5%, the Commerce Department said in its first fourth-quarter GDP snapshot.

The slowdown, which follows two back-to-back quarters of bullish growth, is likely to be short-lived given the enormous tailwind from lower gasoline prices. Most economists believe fundamentals in the United States are strong enough to cushion the blow on growth from weakening overseas economies.

Even with the moderation in the fourth quarter, growth remained above the 2.5% pace, which is considered to be the economy's potential. Economists had expected GDP to expand at a 3% rate in the fourth quarter.

For all of 2014, the economy grew 2.4% compared to 2.2% in 2013. The report came two days after the Federal Reserve said the economy was growing at a “solid pace,” an upgraded assessment that keeps it on track to start raising interest rates this year.

The US central bank has kept its short-term interest rate near zero since December 2008 and most economists expect a mid-year lift-off.

Consumer spending, which accounts for more than two-thirds of US economic activity, advanced at a 4.3% pace in the fourth quarter - the fastest since the first quarter of 2006 and an acceleration from the third quarter's 3.2% pace.

According to government data, gasoline prices have plunged 43% since June, leaving Americans with more money for discretionary spending. A strengthening labor market, despite sluggish wage growth, is also a boost.