Growth in the US lost momentum at the end of 2014 as weak exports highlighted the risks the recovery faces from sagging overseas demand.

Gross domestic product rose by an annualised 2.6pc in the fourth quarter — below Wall Street expectations for an increase of at least 3pc and a marked slowdown from the 5pc pace set in the third quarter.

While consumer spending — the main driver of the US economy — surged at its fastest pace since 2006, overall growth was dragged down by poor trade numbers and falling government spending. Stocks slipped on Wall Street in response and bond traders pushed back expectations of interest-rate increases by the Federal Reserve’s Federal Open Market Committee.

Separate data showed US earnings growth failed to accelerate in the fourth quarter, confirming that the improving labour market had yet to translate into a sharp pick-up in wage inflation.

Ryan Wang, an economist at HSBC, said: “Policy makers on the FOMC have commented that wage growth in the 3-4pc range would give them more confidence in the sustainability of the economic recovery. However, domestic wage pressures have picked up only modestly over the past year.”

Two-year yields, which are sensitive to expectations for official interest rates, were down four basis points to 0.48pc. Ten-year Treasuries slid 8bp to 1.67pc, their most meagre payout since May 2013, while the 30-year bond was at a record low of 2.26pc.

Quarterly GDP rise is well below forecasts

The numbers came after the Federal Reserve this week signalled that it remained on course to raise short-term interest rates despite weaker overseas growth and slowing inflation, and that no move was expected before June.

The central bank’s FOMC held its key rate at 0-0.25pc in its first meeting of 2015 and said the US economy was expanding at a ‘solid’ pace, with strong gains in employment.

For the whole of 2014, GDP rose 2.4pc, compared with an increase of 2.2pc in 2013, the commerce department said. Household spending, which accounts for two-thirds of the economy, expanded by 4.3pc compared with 3.2pc in the prior quarter, confirming that consumers remained the engine of the recovery.

Export growth slowed from the third quarter and investment growth dropped sharply. Joseph LaVorgna, chief US economist at Deutsche Bank, said the US currency may be taking its toll on the export sector after the trade-weighted dollar rose more than 8pc in December from a year earlier.

Published in Dawn, Economic & Business, February 2nd, 2015

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