Saturday, July 12, 2014
Inquirer Daily News

Solid growth brightens economic outlook for 2014

Shopping for clothes at a Uniqlo Co. store in New York City. Consumer spending rose in the fourth quarter at an annual rate of 3.3 percent - up from 2 percent in the third quarter.
Shopping for clothes at a Uniqlo Co. store in New York City. Consumer spending rose in the fourth quarter at an annual rate of 3.3 percent - up from 2 percent in the third quarter. VICTOR J. BLUE / Bloomberg
WASHINGTON - Consumers will spend more. Government will cut less. Businesses will invest more. And more companies will hire.

Add it all up, and you can see why expectations are rising that 2014 will be the best year for the U.S. economy since the recession ended 41/2 years ago. That's why the Federal Reserve is pressing ahead with a plan to scale back its economic stimulus.

Optimists got a boost Thursday from a government report that showed consumers fueled solid economic growth in the final quarter of 2013. The report lifted hopes that the economy will be able to withstand turmoil in emerging economies, a pullback in the Fed's stimulus, and mounting risks to the U.S. stock market over the next 12 months.

Americans struggling with long-term unemployment and stagnant pay might not get relief anytime soon. And areas such as manufacturing, construction, and home sales remain far from full health. Still, the outlook for the economy as a whole brightened after the government said growth reached a 3.2 percent annual rate last quarter on the strength of the strongest consumer spending in three years.

Consumer spending surged in the October-December quarter at an annual rate of 3.3 percent - the best pace since 2010 and a big jump from the 2 percent growth rate of the previous quarter. Consumer spending is particularly important as it accounts for about 70 percent of the economy.

While the 3.2 percent growth was actually a drop from the third quarter's 4.1 percent rate, economists were impressed because the fourth-quarter result included a nearly three-week government shutdown.

For 2013 as a whole, the economy grew a tepid 1.9 percent, weaker than the 2.8 percent increase in 2012, the Commerce Department said Thursday. Growth was held back by higher taxes and federal spending cuts that kicked in early in 2013.

A budget deal Congress approved earlier this month halted tens of billions in additional spending cuts due to start this year. With that drag diminished, many economists think growth could top 3 percent in 2014, the best showing since the recession ended in mid-2009.

Many investors fear the Fed's pullback in bond purchases will raise U.S. interest rates and cause investors to shift money out of emerging markets and into this country for higher returns. Currency values in emerging economies have fallen over that concern.

In response, central banks in emerging economies, from India to Turkey to South Africa, have been acting to counter any damage from the Fed's pullback and the prospect of higher U.S. rates. They have been raising their own rates, hoping to control inflation, lift their flagging currencies, and keep investors from fleeing.

Most analysts think the improving U.S. economy will manage to withstand any damage that might spread from overseas.

Associated Press
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