US and Europe

The US economy continuing its good growth, likely to improve in 2015

Tuesday March 10, 2015 Hugh Dixon

Since the start of 2014, the US economy has been growing at what can only be called a good pace.  Real GDP grew by 2.4 percent, while 3.1 million people were added to the job market and unemployment fell to 5.6 percent.  At the same time total personal income of Americans grew by 4 percent, while personal consumption expenditure grew by 3.9 percent and inflation declined for the first time since October 2009.   

 

Altogether this information points to a US economy that has been growing at a good pace, but given the level of job and income growth that has occurred in 2014, the US economy could grow by a much faster rate in 2015 than the 2.2 percent seen in 2014.

 

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Real GDP growth for the December quarter grew by 0.5 percent, down from 1.2 percent in September quarter of 2014.  The December quarter growth rate has been revised down from its initial annual estimate.   Overall Real GDP growth for the US in 2014 was 2.4 percent, up slightly from the 2.2 percent growth seen in 2013. 

 

For the 2014 year the US had very strong growth in the June and September quarters, following a decline in GDP in the March quarter.  This result for the December quarter is more in line with the general GDP growth rate currently in the US, of around 2.5 percent.   

 

Non-farm employment in the US rose by 295,000 in February 2015, and the unemployment rate dropped down to 5.5 percent.  Over the last 12 months non-farm employment in the US has increased by 2.4 percent, which is equivalent to a total increase of 3,296,000, or a monthly increase of 275,000.  This is a strong increase on the previous 12 month period which saw a monthly increase in employment of only 185,000. 

 

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This strong growth in employment has seen the US unemployment rate fall from 6.7 percent in February 2014 to 5.5 percent in February 2015.  24 months ago the unemployment rate was 7.7 percent in February 2013.  As the unemployment rate drops, we should start to see faster increases in wages and salaries as companies start to compete more for workers.  This in turn will see consumer spending increase and could also lead to stronger growth in GDP.    

  

With the increase in US employment, total personal income for the month of January increased by US$51 billion to US$15,062 billion, or an increase of 0.3 percent for the month.  Annually personal income grew by 4 percent to the year ending December 2014.

 

At the same time personal consumption expenditure decreased by US$18.9 billion to US$12,088 billion or 0.2 percent for the month.  Annually personal consumption expenditure grew by 3.9 percent to the year ending December 2014.  Given the growth seen throughout 2014, and the growth in jobs and decline in unemployment, it is likely that the result for January is a blip in the continued growth in total consumer spending, caused by a strong decline in gasoline prices in the US.

 

The Consumers Price Index (CPI) for the month of January 2015 fell by 0.7 percent on the back of an 18.7 percent fall in the price of gasoline.  If gasoline prices had remained the same in January 2015, the CPI would have increased by 0.1 percent.  Due to falling gasoline prices the CPI had also declined by 0.3 percent in both November and December 2014. 

 

On an annual basis the CPI fell by 0.1 percent, this is the first negative decline in the CPI since October 2009, and is mainly due to a decline in gasoline prices, which is down 35.4 percent for the year.

 

Overall this information confirms that the US economy is heading in the right direction to increase its rate of growth.  As the US economy is the world’s largest economy, it is likely that as income levels grow so too will the amount of goods and services imported into the US, this will in turn help to boost the rest of the world economy including New Zealand.