BY LAWRENCE YUN, SENIOR VICE PRESIDENT AND CHIEF ECONOMIST & GEORGE RATIU, NAR DIRECTOR,
QUANTITATIVE & COMMERCIAL RESEARCH, NATIONAL ASSOCIATION OF REALTORS®
GROWTH IN ECONOMY LIFTS SIOR
MARKETS TO HIGHEST
NAR ECONOMIC OVERVIEW
The economy closed 2014 on a positive note, even accounting
for the fourth quarter’s slower growth rate. The Bureau of
Economic Analysis’s first estimate of gross domestic product
came in at $16.3 trillion for the fourth quarter, indicating a 2. 6
percent annual growth rate. While it certainly seems lower
than the second and third quarters’ 4. 6 percent and 5.0 percent,
respectively, the fourth quarter remains subject to at least two
more revisions. The second and third quarter figures were also
lower in the initial estimates.
The slowdown in the fourth quarter GDP came from a
significant decline in government spending at the federal level.
Federal defense spending dropped 12. 6 percent during the
quarter. Federal nondefense spending rose at an annual rate
of 1. 7 percent. Meanwhile, benefiting from rising property tax
revenues, state and local governments increased spending 1. 3
percent on an annual basis.
The main boost to GDP growth came from consumer spending,
which accounts for two thirds of economic activity. Consumer
expenditures gained during 2014 with each successive
quarter, from an annual rate of 1. 2 percent in the first quarter
to 4. 3 percent in the fourth quarter. Encouraged by rising
employment trends and higher household wealth, consumers
spent more on both goods and services. The fourth quarter’s
7. 5 percent increase in spending on durable goods was driven
by higher purchases of vehicles and auto parts (up 6. 4 percent),
furniture and household appliances (up 5. 7 percent), as well
as recreational vehicles and equipment (up 9. 8 percent). As
the fourth quarter included the holiday season, consumers
benefitted from noticeably lower gasoline prices. With colder
weather and increased holiday travel, spending on gasoline rose
12. 3 percent. However, lower gas prices also meant consumers
found room in their budgets to spend more on clothing and
shoes (up 13. 4 percent).
Consumer spending on services rose at the strongest rate of
2014, 3. 7 percent in the fourth quarter. With the start of the
winter holiday season, consumers upped their expenditures
of recreation 5. 9 percent, while increasing spending at hotels
and restaurants 6.0 percent. Spending on financial services and
insurance increased at an annual rate of 6. 4 percent.
The pace of business investments in the last quarter of 2014
throttled back from the accelerated pace of the previous
two quarters. Nonresidential fixed investment advanced at
a slower annual rate of 1. 9 percent in the fourth quarter, as
companies cut back on equipment spending. Double-digit
cuts in purchases of industrial and transportation equipment
led to a 1. 9 percent decline in overall equipment investment.
Spending on information processing equipment—computers
and peripherals—was the only bright spot, advancing
15. 8 percent.
Business investments in commercial real estate rose 2. 6 percent
in the fourth quarter, the slowest pace of the year. Companies
did up their investment of intellectual property products—
software, R&D, along with entertainment, literary and artistic
works—at a 7. 2 percent annual growth rate.
With declining global economic growth pushing the U.S.
dollar’s parity higher, imports of goods and services rose 8. 9
percent in the last quarter of 2014. Export growth moderated,
advancing 2. 8 percent, leading to a negative balance of trade
of $471.5 billion.
The fourth quarter offered positive news on employment.
Payroll employment rose at the strongest pace in the last
stretch of the year, adding 850,000 new jobs. The figure closed
the year with a total net gain of 2. 6 million employees. The
unemployment rate dropped to 5. 7 percent for the fourth
quarter, the lowest of 2014.