Critical Problems For U.S. Economy Feds Report Slowing GDP In 4th Quarter, Lagging Wage Growth

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The U.S. recovery is continuing, but the fourth quarter showed slower growth in the gross domestic product (GDP), worrying economists.

 

The federal government reported that the fourth-quarter GDP rise was 2.6 percent compared to 5 percent in the third quarter as wages grew more slowly than economists had been looking for, according to a TIME report.

 

Still, not many expected the fourth quarter to outperform a very strong third quarter, but the slower GDP was accompanied by some troublesome news: the Employment Cost Index, which measures overall employment costs ranging from wages to benefits such as health care, rose 2.2 percent for the fourth quarter compared to the same time last year. Overall, the growth was 2.3 percent, but economists had hoped it would rise more than that.

 

The fact that it failed to do so indicates that wage growth is still lagging behind, and remains the key piece of the recovery that has yet to materialize.

 

Americans, fortunately, have been able to find work with increasing success in recent months — they just haven’t seen their wages rise with the increase in employment. Also, middle class jobs seem to be hard to come by.

 

The lack of wage rise will likely slow inflation, which should boost the argument for the Federal Reserve to start raising interest rates again, as it appears likely to do this summer.

 

An Economic Times report was more optimistic, reporting that the economy was likely to pick up speed again in 2015 and that the growth in the fourth quarter, while much lower than the third quarter, was still very healthy. The downturn was likely the result of business investment slowing toward the latter part of the year, driven by plunging oil prices that have resulted in deep cuts by drillers and energy companies.

 

Source: National Monitor

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