Fourth quarter drop in US economic growth
US ECONOMIC growth slowed sharply in the fourth quarter as a plunge in shipments of soybeans weighed on exports, but steady consumer spending and rising business investment suggested the economy would continue to expand.
Gross domestic product (GDP) increased at an 1.9 percent annual rate, the Commerce Department said on Friday in its first estimate of fourth-quarter GDP. That was a deceleration from the 3.5 percent growth pace logged in the third quarter.
As a result, the economy grew only 1.6 percent in 2016, the weakest pace since 2011. Growth last year was constrained by cheap oil and a strong dollar, which hurt company profits and undercut business investment.
Out of the way
An inventory correction also eroded growth. Those impediments to growth are mostly out of the way. The economy expanded 2.6 percent in 2015.
In the fourth quarter, exports fell at a 4.3 percent rate, reversing the 10 percent increase notched in the third quarter. The fourth-quarter drop in exports was the biggest since the first quarter of 2015.
Trade sliced off 1.70 percentage points from GDP growth in the fourth quarter after adding 0.85 percentage points in the prior period. That was the biggest drag since the second quarter of 2010. Most of the hit came from soybean exports, which fired up GDP growth in the third quarter after a poor soy harvest in Argentina and Brazil.
Economists polled had forecast GDP rising at a 2.2 percent rate in the fourth quarter.
Prices for US government debt rose and US interest rates futures turned flat after the data. US stock index futures pared gains while the dollar fell against the euro and yen.
With a labour market at or near full employment starting to lift wages and supporting consumer spending, the outlook for the economy is fairly bright. Growth this year could also get a boost from President Donald Trump’s pledge to increase infrastructure spending, cut taxes and reduce regulations.
Although Trump has offered little detail on his economic policy, his promises have been embraced by consumers, businesses and investors. Consumer and business confidence have soared, while the US stock market has rallied to record highs.
But uncertainty over the Trump administration’s trade policy poses a risk to the economy.
A stronger economy would also mean further interest rate increases from the Federal Reserve. The US central bank has forecast three rate hikes this year. It raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent.
Consumer spending, which accounts for more than twothirds of US economic activity, increased at a 2.5 percent rate in the fourth quarter. It rose at a 3.0 percent pace in the third quarter.
Income at the disposal of households increased 3.7 percent in the fourth quarter after a robust 4.1 percent rise in the prior period. Savings dipped to $791.2 billion (R10.63 trillion) from $818.1bn in the third quarterWith domestic demand increasing steadily, businesses continued to restock. They accumulated inventories at a rate of $48.7bn in the last quarter, up from $7.1bn in the third quarter. Inventories added 1.0 percentage point to GDP growth, double the contribution in the third quarter.
Business investment shifted into higher gear, with spending on equipment increasing at a 3.1 percent rate. – Reuters
Trump’s economic policy promises have been embraced by consumers and businesses.