Q4 surge fueled by feds, consumers, companies

2.9% growth much better than expected, close to Trump’s goal of 3%

The U.S. economy expanded at a rate of 2.9 percent in the fourth quarter, the Commerce Department reported Wednesday, much better than Wall Street analysts expected and very close to President Donald Trump’s goal of 3 percent growth.

The strong growth came largely from Americans opening their wallets to spend more. Consumption accounts for about 70 percent of the U.S. economy, and as more Americans get jobs, they are able to buy more online and at stores. Businesses also boosted their spending at the end of last year, beefing up their inventories as execu- tives expect sales to pick up. There was also more federal government spending, especially on defense, according to the report.

The new estimate revises the government’s previous estimate for growth from October through December, which was 2.5 percent. The jump to 2.9 percent growth was better than economists expected and means that the U.S. economy grew at an average pace of 3.1 percent from April through December of last year, a fact the Trump administration is likely to tout as evidence its economic policies are working.

The president’s Council of Economic Advisers tweeted about the revision on Wednesday morning, heralding it as “even stronger” than anticipated:

“According to the third estimate of Q4 2017 GDP released this morning, which exceeded consensus expectations, economic growth in 2017 was even stronger than the data previously indicated.”

Most economists, however, attribute the healthy growth last year to the rebounding global economy. At least 120 countries have seen a pickup in growth in the past year, according to the International Monetary Fund, a synchronized global upturn that hasn’t been seen since 2010.

“The message remains one of solid domestic activity in the fourth quarter, driven by household and business spending,” said

economist Pooja Sriram at Barclays. “The synchronized nature of global growth is likely to support stronger business investment, faster export growth and higher imports of capital goods in the coming quarters.”

Growth is also expected to pick up even more this year as the Re- publican tax cuts are likely to encourage more consumer spending and prompt businesses to invest more in new equipment, factories, robots and additional workers. The consensus forecast for the pace of growth this year is 2.8 percent, with a number of forecasts thinking 3 percent is possible. Even the usually conservative Federal Reserve recently raised its forecast to a 2.7 percent rate of growth for 2018

“The economic outlook has strengthened in recent months,” the Fed said last week.

But the biggest threat to growth is Trump’s trade policies. While the administration is cheering a fresh deal with South Korea on trade, executives and investors are watching what happens between the United States and China. The two countries are locked in negotiations with both sides announcing tariffs and threatening more.

“The economy’s wheels were spinning faster than we thought in the fourth quarter,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “Time will tell if Trump’s economics team can steer its way into the record books. It’s going to be quite a horse race as massive tax cuts help the cause, even as trade sanctions and America-first tariffs appear to hurt the cause for economic growth.”

The U.S. economy has been growing for more than eight years, already making this the third-longest expansion.