The stronger dollar surely contribu

The stronger dollar surely contributed to the shifting balance of imports and exports. Federal spending declined 7.5% after gaining 9.9% in the third quarter. This was the result of a 12.5% decrease in defense spending after a 16% ramp up in the prior quarter. In short, these shifts were foreseeable but apparently somewhat stronger than economists were factoring.

More broadly the slowdown from the third quarter was anticipated as few economists or investors viewed such a high rate of growth as sustainable. Contributing to the deceleration was the increase in imports and the downturn in federal spending as well as slower nonresidential fixed investment and exports.

The price index for gross domestic purchases — which measures prices paid by U.S. residents — decreased 0.3%, compared to 1.4% growth in the third quarter. However, when food and energy prices are stripped out the price index increased 0.8% compared to 1.6% in the prior quarter. Oil prices dropped sharply over the quarter and have continued moving lower in the new year. Real personal consumption expenditures increased 4.3% compared with an increase of 3.2% increase last quarter.

Equity markets were in negative territory prior to the report and stayed there in the moments after. The S&P 500 index initially sunk lower before regaining a few points. With about 40 minutes to go until the opening bell the index was down 0.9% to about 2,000 points. The 10-year Treasury note yield fell to 1.68%. Bond yields decline as prices increase.

Looking ahead US analyst for The Economist Intelligence Unit Joseph Lake — who is positive on the 2014 picture — wrote in a note, “The coming year could be even better. Consumption will be boosted by several trends, including the long-awaited appearance of wage growth, and lower petrol and heating costs, which will leave more money in consumers’ pockets. We expect annual real GDP to accelerate to 3.4% in 2015, outpacing the rest of the world for only the second time since the boom years of the 1990s.”

BEA will release its second estimates of Q4 and full year 2014 GDP on Friday, February 27.