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US economy grew at 2.6 percent last quarter, below expectations

  1. The US economy grew at a rate of 2.6 percent in the fourth quarter, the Commerce Department reported Friday.
  2. That's below economists' consensus estimates, which had been at 3.2 percent, according to Bloomberg.
  3. It's also a cooling-off after the blistering growth of the prior two quarters, in which the economy grew at rates of 4.6 and 5.0 percent, respectively.
  4. This gives the Federal Reserve more information about when to increase interest rates. Slower economic growth could signal to central bankers that they can hold interest rates lower for longer, stimulating the economy.
GDP growth

The Commerce Department reported Friday that fourth-quarter GDP growth came in under expectations, at a disappointing 2.6 percent annualized growth rate. That's below economists' expectations, which had been around 3 percent.

The slowdown was an effect of higher import levels and lower export levels, the department reported, as well as less government spending and less nonresidential fixed investment — a term for business investments in things like factories and equipment.

But another Friday report from the Labor Department provides a bit more depth to what's going on in the economy. The Bureau of Labor Statistics reports that compensation costs for civilian workers picked up by 2.2 percent. As economist Justin Wolfers tweets, that doesn't bode well for workers.

Take a slow GDP growth rate and combine it with slow growth in wages, and you have more room for the Federal Reserve to keep interest rates low. Everyone is watching to see when the Fed will raise interest rates from their near-zero levels, where they've been for six years — it could happen as early as June. At this week's Federal Open Market Committee meeting, the central bank said it was remaining "patient" on interest rates. Two less-than-stellar reports suggest that this may simply be no time to be thinking about raising rates.

The bigger picture on GDP

Though the GDP figure is a mild disappointment, this is only the advance estimate. The department will do two revisions to it in the coming months. Those revisions can be big — the third quarter's GDP growth rate was originally reported at 3.5 percent before being revised up to 5 percent.

Altogether the department reported, the economy only grew by 2.4 percent in 2014, up slightly from 2.2 percent in 2013.