WARM, NOT HOT

Shopping, home building spur 2.6% GDP rise

The US economy grew at a solid rate of 2.6 percent in the final three months of last year, helped by the fastest consumer spending since the spring of 2016 and a big rebound in home construction.

The fourth quarter’s advance in the gross domestic product, the country’s total output of goods and services, followed gains of just above 3 percent in the second and third quarters, the Commerce Department reported Friday. The slowdown in the OctoberDecember period reflected a worsening trade deficit and less growth in inventory restocking by companies.

For all of 2017, the economy grew 2.3 percent. That is a significant improvement from a 1.5 percent gain in 2016 but little changed from the modest 2.2 percent average growth rate turned in since the Great Recession ended in June 2009.

Economists are looking for even better growth this year, propelled by the $1.5 trillion tax cut that President Trump pushed through Congress in December. The Trump administration contends that its economic program of tax cuts, deregulation and tougher enforcement of trade laws will lift economic growth to sustained rates of 3 percent or better in coming years.

Trump has said his tax plan will serve as “rocket fuel” for the economy by prompting Americans to spend more and businesses to step up investment.

Economists, however, believe the growth spurt will be short-lived.

“Deficit-financed tax cuts will provide some near-term juice to the economy but it will prove to be temporary because we are already at full employment and the Federal Reserve will respond by raising interest rates more aggressively,” said Mark Zandi, chief economist at Moody’s Analytics.

Michael Pearce, senior US economist at Capital Economics, said that the imports surge that widened the trade deficit reflected a payback from port disruptions caused by hurricanes in the third quarter. He forecast solid growth in coming quarters.

“The US economy had plenty of momentum even before the tax cuts take effect this year,” Pearce said.

Treasury Secretary Steven Mnuchin, interviewed on CNBC, described the modest slowdown in the fourth quarter as a shortterm aberration.

“We’re not concerned about any one quarter which could be revised up or down,” he said. “I think people now expect we’re getting to 3 percent GDP.”

Mnuchin said the administration was very happy with the initial reaction from US companies to the new tax bill, which he said had already generated pay bonuses for more than 2.5 million Americans, amounting to “literally hundreds of billions of dollars of commitments.”

The president, speaking Friday to the World Economic Forum in Davos, Switzerland, also touted the benefits of the tax overhaul, saying, “America is open for business and we are competitive once again.”