WASHINGTON -- The U.S. economy expanded at a 2.2 percent annualized pace in the fourth quarter, led by the biggest gain in consumer spending in eight years, the Commerce Department reported.
The tepid performance was typical of the economic rebound, which began in the summer of 2009.
Yet the generally sluggish pace of the U.S. recovery masks a sign of strength: This growth spurt has proved to be one of the most durable since World War II. And it seems at no risk of ending anytime soon.
The economic recovery will mark its sixth anniversary in June, meaning it will have already lasted 14 months longer than the average expansion since World War II.
"This recovery has been disappointing in terms of growth so far, but if you are looking for a silver lining, it is that the slow rate of growth has allowed the economy to avoid the kinds of excesses that can lead to overbuilding, overlending or other problems," said Mark Zandi, chief economist at Moody's Analytics. "We are a long way from that."
The longest recovery on record was the 10-year growth period that lasted from March 1991 to March 2001. But many economists believe this expansion could surpass that. Zandi said it may only be at the halfway point, meaning it could last another six years.
In the final look at fourth-quarter gross domestic product, the government said consumer spending was more robust than previously estimated, though business restocking was weaker.
Consumer spending, which accounts for 70 percent of economic activity, grew at a 4.4 percent rate in the fourth quarter -- the strongest performance in eight years and even better than the 4.2 percent estimated a month ago. Export growth also posted an improvement, although those gains were offset by slower growth in business inventories, leaving total GDP unchanged.
"The consumer is still going to hold up," said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, which correctly forecast GDP. "As we look toward the middle of the year, you have a consumer that continues to see aggregate income growth."
The report also showed that inflation was well under control. A price measure tied to GDP rose just 0.1 percent in the fourth quarter. Excluding food and energy, prices rose a modest 1.1 percent. Analysts said the gain reinforced the Federal Reserve's view that inflation was continuing to fall below its target of 2 percent.
"The economy was on solid footing at the end of the year, while inflation and inflation expectations continue to ratchet lower than expected," said Bricklin Dwyer, an economist at BNP Paribas.
Economic growth for all of 2014 also remained unchanged at 2.4 percent, only a tiny improvement from the 2.2 percent growth seen in 2013. For the past five years, growth has averaged a sub-par 2.2 percent.
In 2014, the economy actually shrank at an annual rate of 2.1 percent in the first quarter as the country was hit by a series of severe winter storms. Growth rebounded to a 4.6 percent rate in the spring and a 5 percent rate in the third quarter in the strongest performance in 11 years.
But growth slowed in the fourth quarter, and the deceleration is expected to extend into the January-March period, reflecting the effect of winter storms and shipping disruptions from a West Coast port dispute. Economists, however, believe strong gains in consumer spending will propel growth to a rate of at least 3 percent in 2015, which would be the best performance in a decade.
Part of Zandi's optimism stems from his belief that with inflation currently so low, the Fed will be able to move gradually when it starts raising rates, likely later this year. And with the Fed's target rate at a record low near zero, it will take time before rates are increased to the point at which they slow borrowing activity and overall economic growth.
Many economists believe that at most, the Fed will move rates in two small quarter-point moves this year, leaving them below 1 percent at the end of 2015. That was the previous record low before the current six-year stretch of rates near zero.
Nariman Behravesh, chief economist at IHS Global Economics, thinks that growth will rebound to a solid 3.4 percent rate in the April-June quarter and remain robust for the rest of the year.
He believes that the job growth seen over the past year, the strongest in 17 years, will energize consumer spending, which accounts for 70 percent of the economy.
"Consumers are going to be the engine of growth for the U.S. economy this year," Behravesh said.
Behravesh believes that the expected deceleration in the first three months of this year won't be anything like last year when a series of storms combined with other factors to send the economy into a sharp contraction.
"We are going through a soft patch, but it is nothing like what we saw a year ago," he said.
Bad weather and rising gasoline prices pushed U.S. consumer sentiment a bit lower in March.
The University of Michigan's consumer sentiment index slipped to 93 this month from 95.4 in February. Richard Curtin, chief economist for the survey, notes that consumer optimism was the highest in a decade for the first three months of 2015 despite the dip in March.
Sentiment shot up to an 11-year high in January, then retreated modestly in February and March. One reason for the pullback: Gasoline prices have been ticking back after a sharp drop in the second half of 2014. Gasoline costs an average $2.43 a gallon, up from low of $2.03 a gallon in late January; but prices at the pump are still down from $3.54 a year ago, according to AAA.
Information for this article was contributed by Martin Crutsinger and Paul Wiseman of The Associated Press and by Victoria Stilwell and Kristy Scheuble of Bloomberg News.
Business on 03/28/2015