Weak consumer spending bites into US economy in quarter 4 of 2015

The U.S. economy sharply slowed in the fourth quarter of 2015 as consumers were tightening their wallets despite the ultra-low gas prices.

The gross domestic product (GDP) increased at an annual rate of 0.7 percent during October-December, according to the advance estimate released by the Commerce Department on Friday.

Consumer spending, which accounts for about 70 percent of the U.S. economy, added 2.2 percent, a sharp brake from a growth of 3 percent in the third quarter.

Exports decreased 2.5 percent, compared with a growth of 0.7 percent in the third quarter. Fixed investment was up a scant 0.2 percent, compared with an increase of 3.7 percent in the previous quarter.

Real GDP increased 2.4 percent in 2015, the same rate as in 2014.

Analysts said consumer spending was particularly weak in the fourth quarter because the mild winter weather held consumers back from splurging.

Jason Furman, Chairman of the Council of Economic Advisors, said in a statement that headwinds from slowing foreign growth had weighed on U.S. exports and would continue to do so.

The Federal Reserve said on Wednesday that it will maintain the target range for the federal funds rate at 0.25 percent to 0.5 percent, pledging to keep the monetary policy accommodative to support economic growth.

Labor market conditions improved further even as economic growth slowed late last year and household spending and business fixed investment have been increasing at moderate rates in recent months, the Fed said after its two-day monetary policy meeting.

The Fed decided to raise benchmark interest rate by 25 basis points in December last year, the first interest rate increase since 2006, marking the end of an era of extraordinary easing monetary policy.

Analysts have lowered down their projection of the number of interest rate hike in 2016 from four to one, considering the less buoyant economic outlook amid stronger U.S. dollar and persistent tepid consumer spending.

Fed Chair Janet Yellen has reiterated the future increases in interest rate will be data dependent and the central bank will not follow any mechanical formula in the path of rate hikes.