Home / Business / Growth in the fourth quarter slows to 2.9 percent; Increase in consumer spending

Growth in the fourth quarter slows to 2.9 percent; Increase in consumer spending

WASHINGTON (Reuters) – Economic growth in the US slowed less than previously estimated in the fourth quarter, as the largest increase in consumer spending in three years partially offset the impact of an import jump.

A shopper is seen in a Target Shop in the Brooklyn district of New York, USA, on November 14, 201
7. REUTERS / Brendan McDermid

Gross domestic product increased by 2.9 percent a year in the last three months of 2017, up from 2.5 percent previously reported, the Ministry of Commerce said in its third GDP estimate for the period on Wednesday. This was a slight slowdown versus the strong 3.2 percent gain in the third quarter.

The upward revision of the growth estimate for the fourth quarter also reflected a lower inventory reduction than previously reported. Economists polled by Reuters had expected GDP growth to be revised to 2.7 percent in the fourth quarter.

There are signs that the economy slowed further in the first quarter and retail sales fell for the third consecutive month in February. Housing data were generally weak and the trade deficit reached more than nine years in January.

Estimates for GDP growth in the first quarter are currently just under 2.0 percent. However, analysts expect the economy to reach Trump's annual growth target of 3 percent this year, driven by a $ 1.5 trillion income tax cut and a planned increase in government spending.

That could keep the door open for slightly more aggressive interest rate hikes by the Federal Reserve this year. The Federal Reserve raised interest rates last week and forecast at least two more interest rate hikes in 2018. The Fed raised its forecasts for economic growth for this and 2019.

The economy grew by 2.3 percent in 2017, an acceleration of 1.5 percent in 2016.

The government reported Wednesday that after-tax corporate profits after tax rose 1.7 percent in the fourth quarter increased by 5.7 percent in the third quarter.

The government said that while the income tax reform provisions that entered into force in January had no effect on corporate profits from ongoing production, they had an impact on net cash flow in the fourth quarter.

An alternative measure of growth, gross domestic income, increased 0.9 percent between October and December. GDI expanded by 2.4 percent in the third quarter.

The average of GDP and GDI, also known as gross domestic product, which is considered a better measure of economic activity, rose 1.9 percent in the fourth quarter. This corresponds to a growth rate of 2.8 percent in the previous period.

Prices of US Treasuries reduced profits according to the data. The US stock index futures were mixed while the dollar .DXY was stronger against a basket of currencies.


Consumer spending growth, which accounts for more than two-thirds of the US economy, was revised up from 4.0 percent last month to 4.0 percent in the fourth quarter. This was the fastest pace since the fourth quarter of 2014, following a growth rate of 2.2 percent in the period July to September.

Containers are seen in the Port of San Pedro, California, USA, on March 22, 2018. REUTERS / Bob Riha, Jr.

Imports grew at an upwardly revised pace of 14.1 percent instead of the previously reported 14.0 percent. That was the strongest increase since the third quarter of 2010, overshadowing the rise in exports due to the dollar weakness.

The resulting trade deficit declined by 1.16 percentage points of GDP growth in the last quarter, the highest in a year after rising 0.36 percentage points in the third quarter. Trading is expected to further impact GDP growth in the first quarter.

The trade deficit widened sharply in January. A separate report from the Commerce Department on Wednesday showed that the commodity trade deficit rose slightly in February.

While robust consumer spending hampered the accumulation of inventory, the slowdown in inventory investment was not as strong as previously reported.

Inventory increased $ 15.6 billion in the fourth quarter, up from $ 8.0 billion previously. Inventories decreased by 0.53 percentage points of GDP growth after having increased by 0.79 percentage points in the previous period.

Inventories could contribute to growth in the first quarter. The Commerce Department reported Wednesday that both wholesale and retail stocks had rallied solidly in February.

Corporate equipment spending growth eased from 11.8 percent last month to 11.6 percent. This was still the best performance since the third quarter of 2014.

Housing investment increased 12.8 percent and not the previously reported 13.0 percent after having shrunk in two consecutive quarters. The momentum is likely to have slowed in the third quarter against a background of weak home sales.

Government spending grew by 3.0 percent and was revised up by 2.9 percent. That was the strongest pace since the second quarter of 2015.

Reporting by Lucia Mutikani; Arrangement by Paul Simao

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