U.S. economic growth slowed sharply in the fourth quarter as businesses intensified efforts to reduce excess inventory, consumers reduced spending, weak global demand and a strong U.S. dollar hurt exports, and businesses limited investment, the government reported Friday. The Commerce Department said gross domestic product (GDP) increased at a 0.7 percent annual rate in the final three months of 2015, following a 2 percent rate in the third quarter. It was the weakest performance since a severe winter reduced growth to a 0.6 percent rate in the first quarter of last year. Business inventories slowed to $68.6 billion in the fourth quarter from $85.5 billion in the July-September period, subtracting 0.45 percentage point from the government's first of three estimates of fourth-quarter GDP growth. Consumer spending, which accounts for 70 percent of U.S. economic activity, slowed to a 2.2 percent growth rate, down significantly from the 3.0 percent pace in the third quarter. Another source of weakness was a decline in exports, which in addition to the strong dollar were hurt by weakness in key export markets like China and Europe. A wider U.S. trade deficit cut the fourth-quarter growth rate by 0.5 percentage point. Businesses also reduced investment spending, which fell at a 1.8 percent annual rate, reflecting a 38.7 percent plunge in spending in the oil and natural-gas industry, which has cut drilling and exploration in response to the plunge in oil prices. For all of 2015, the economy grew 2.4 percent, matching growth in 2014. Both years improved on a 1.5 percent increase in 2013. Last year's performance continues the economy's pattern of modest growth since the Great Recession officially ended in mid-2009. For 2016, economists forecast another year of modest growth of around 2 percent, with strength in the domestic economy to offset weakness in export sales and in the U.S. energy sector. At the same time, economists have increased the likelihood of a recession this year to about 20 percent.
