Consumers behind renewed hope of US economic take-off

The American consumer is spurring renewed optimism that the U.S. economy is finally about to take off.

The Commerce Department’s report on Gross Domestic Product shows the economy grew 3.2 percent on an annual basis in the fourth quarter of 2013, boosted by consumer spending, which was up 3.3 percent — the biggest increase in three years.

Combined with the 4.1 percent increase in the third quarter, the GDP gains over the last two quarters represent the greatest hike in two years.

“The GDP release cements the conclusion that U.S. economic growth has finally accelerated from fair to good,” says Doug Handler, Chief North American Economist at IHS Global Insight. “And (it) provides evidence that this acceleration will continue into 2014.”

TD Economics Senior Economist Michael Dolega agrees: “This is undeniably a solid report pointing to an economy that’s about to take off in 2014.”              

Dolega says the rebound in the housing market has boosted consumer confidence, leading to more spending.

“It’s making people feel better,” he said.

Dolega also sees a lot of pent up demand as consumers watched their budgets through recent tough economic times.

“A lot of people have held back spending,” he says.

Handler suggested that fourth quarter growth would have been even stronger if not for a 12.6 percent drop in federal government spending, caused by the October shutdown and spending reductions. But he does not see that as much of a factor going forward.

“Most of those effects will not carry over into this year,” he said.

And Dolega feels that Washington will not give us a repeat of the so-called “sequestration.”

“Politicians are coming to realize they can’t do that,” he said.

Both Doega and Handler said that even though an increase in business inventories added almost half a percentage point to overall GDP, they do not see that as a drag on future growth.

“If you look at the underlying drivers of the economy, it looks to be a fairly decent first half of 2014,” Handler says.

And Dolega sees the economy growing from 1.9 percent in 2013 to 2.7 percent this year, and 3.1 percent in 2015.

 “I have a lot of confidence,” he added.