Real U.S. economic growth slowed to an annualized rate of 0.7% in 4Q15, but with consensus estimates of 0.8%, this report did not come as a surprise to markets. Expectations leading up to the report were for slower growth due to the familiar headwinds of low commodity prices, an inventory overhang and a strong dollar. Each of these came to pass, as shown in the chart. Business investment, for example, detracted 0.2% from growth this quarter, as investment in mining and oil exploration structures decreased at an annualized rate of almost 40%. Strength in the report was similarly predictable, and although consumption slowed to an annualized pace of 2.2% last quarter, it still contributed 1.5% to growth, and residential investment proved to be a tailwind following an unusually mild start to the winter. In 2015, real GDP increased at an above-trend rate of 2.4%, matching economic growth in 2014. While there was some weakness in this quarter’s report, growth at an annual pace of 2.4% is consistent with our expectation for continued rate increases in 2016, and the details of this report highlight that the consumer is alive and well.
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