United States Economy Shows Signs Of Concern

Based on GDP, the United States is the world's largest economy; out-performing the second largest by $7.5 trillion. However, the world's largest economy seems to be showing signs of major concern. Today, we'll take a look at the growth we saw throughout the year 2014 as a whole, why the 4th quarter is proving to be cause for concern, and what we can expect to see throughout the year 2015.

2014 As A Whole

All in all, 2014 growth was relatively impressive. Over the course of the year, the economy grew by 2.4%; the fastest pace seen in 4 years. Based on this figure alone, it may be easy to jump to the conclusion that 2015 is going to be just as good. Unfortunately, economic predictions aren't that simple.

Q4 Disappointment

While the year 2014 was great overall, the fourth quarter wasn't so appealing. In the third quarter, the United States economy grew by an astonishing 5%. However, in the fourth quarter, that figure dropped sharply to 2.6%. While most experts are still looking at this as a good number, I beg to disagree. Considering the fact that Q4 is a big spending quarter as a result of holidays, we should have seen an increase, not a drop of nearly 50%! So, for me, this is a major cause for concern.

The Silver Lining – The old saying goes, “Every dark cloud has a silver lining”, and there is indeed good news to be reported here. Consumer spending grew at a rate of 4.3% in the fourth quarter; the fastest pace we've seen since 2006. However, with foreign trade struggling, the positive effects of consumer spending have been muffled.

Other Major Issues To Consider

As I research this topic, I continue to see experts saying things like “…we all know that over the long term, where the consumer goes, the economy goes…” insinuating that we're going to continue to see solid growth in the economy. However, I think there are other major factors around the world that we need to consider.

1. Consumers Are All Around The World – Sure, we're seeing great growth in local consumer spending. However, when we look to consumer spending around the world, the story is a bit different. The reality is that all economies around the world are heavily dependent on foreign trade. Therefore, if consumers around the world aren't spending, local spending in the United States can't continue to support growth.
2. The Positive Growth May Lead To Bad News – With overwhelming positive growth in 2014, the Federal Reserve is more likely to increase interest rates. Unfortunately, with world-wide concerns, I don't think we'll be ready for that in 2015, but chances are that's when rates will be increased. This is the same concern as one of the major contributing factors in the recession of the early 2000's.
3. A Stronger Dollar Will Continue To Harm Exports – Recently, we've been seeing poor earning reports one after the other. One of the major issues mentioned in these reports is the fact that a strong dollar is hurting sales outside of the United States. As this continues the United States economy will continue to struggle in the foreign trade space.

Final Thoughts

While most experts are taking a stance that the economy slowing in Q4 is OK and that we will continue to see growth; I have to strongly disagree with these statements. It's easy to hope for positive trends in the shadow of an overall positive year. However, I think it's incredibly important to take all factors into account when predicting what may or may not happen in the economy moving forward. When doing so, it's easy to see that the United States is showing major signs of concern and may start to move in the other direction relatively soon.