Tue | Jul 17, 2018

US economy grew at steady 2.1% rate in Q4

Published:Friday | March 31, 2017 | 12:00 AM

The United States economy grew at a slightly faster rate in the fourth quarter than earlier estimates, as consumers ramped up spending that's expected fuel growth throughout 2017.

The gross domestic product, the economy's total output of goods and services, expanded at an annual rate of 2.1 per cent in the October-December period, the Commerce Department reported Thursday.

The figure is an improvement from the previous estimate of 1.9 per cent. The added strength stemmed from stronger consumer spending, which offset an increased drag from trade.

Many economists project growth of around 2 per cent in the current January-March quarter, but they expect greater strength as the year progresses as bullish consumers keep spending.

"Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages, as well as likely tax cuts," said PNC Economist Gus Faucher, who predicted GDP growth for all of 2017 at 2.3 per cent.

That would be a significant improvement from anaemic growth of 1.6 per cent in 2016, the weakest showing in five years. Since the Great Recession ended in June 2009, the economy has averaged annual GDP growth of just 2.1 per cent, the slowest recovery since the end of World War II.

President Donald Trump has pledged to boost GDP growth to 4 per cent or better, though private economists are doubtful he can achieve that goal given the headwinds the economy faces from an ageing workforce and disappointing productivity growth.

He said his economic programme of tax cuts, deregulation and increased spending in such areas as the military and infrastructure would boost the economy back to growth rates not seen on a sustained basis in decades.

Trump has said the administration will soon unveil a plan to cut individual and corporate tax rates, a key component of his stimulus programme.

Treasury Secretary Steven Mnuchin said last week that even if the initial goal of getting the tax measure approved by August slips, he still believes the plan can win congressional approval by this fall.

Mnuchin has cited a lower goal of growth above 3 per cent. Private economists, however, believe the impact of Trump's stimulus efforts will be even smaller. Top forecasters with the National Association for Business Economists on Monday projected GDP growth this year of 2.3 per cent, rising only slightly to 2.5 per cent in 2018.

Fed rate increase

One complicating factor for Trump's programme is the Federal Reserve, which earlier this month boosted a key interest rate for the second time in three months and retained a projection for a total of three rate hikes this year. The Fed is raising interest rates to make sure that inflation does not become a problem but higher rates could make it harder to achieve faster GDP growth.

For the fourth quarter, the government revised its estimate for consumer spending, which accounts for two-thirds of economic activity, to a growth rate of 3.5 per cent from a previous estimate of 3 per cent.

The economy also got a boost from slightly stronger rebuilding of business stockpiles. However, these increases were offset somewhat by a bigger trade deficit, which subtracted 1.8 percentage points from growth in the fourth quarter, and less business investment than previously estimated.

The release Thursday was the government's third look at GDP for the fourth quarter. It will issue its first look at first quarter GDP on April 28.

- AP