Fourth quar­ter drop in US eco­nomic growth

The Star Early Edition - - BUSINESS REPORT - Lu­cia Mu­tikani

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.

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