Economic report portends well for 2018
The U.S. economy finished off last year on a firm footing and is poised for more vigorous growth in the months to come.
Preliminary estimates released by the government Friday showed that the nation’s output increased at an annual rate of 2.6 percent in the final quarter of 2017. Although that performance amounts to less than the heady 4 percent annual growth that President Donald Trump has promised, it is further evidence — along with a sinking jobless rate and surging consumer confidence — of the economy’s resilience.
“The year-end is solid,” said Joel Prakken, chief U.S. economist at Macroeconomic Advisers by IHS Markit. Details within the report, about climbing business investment and depleted inventories, suggest more economic strength than the bare-bones headline number might indicate.
“It portends well for 2018 demand,” he said.
On Wall Street Friday, stocks powered to their biggest gain in almost nine months as drugmakers and technology companies surged. Investors were cheered that Trump appeared to take a more positive tone on international trade. Already at record highs, the S&P 500 is up 7.5 percent in January and on track for its largest monthly increase since October 2015.
In the year ahead, hefty tax cuts, particularly for businesses, are expected to encourage more investment and spending, although many economists predict ballooning deficits will overtake the positive effects in the longer term. One-time quirks that could affect growth measurements this year could also end up artificially pumping 2018’s figures.
Even analysts with ambitious forecasts for the next year, however, agree that the United States is unlikely to sustain annual growth of much more than 2 percent given a smaller, aging workforce; sluggish productivity growth; and soaring deficits.
“The economy’s sustainable trend is around 2 percent,” Prakken said.
The Commerce Department’s report on the gross domestic product — which showed growth for all of last year at 2.3 percent — is a rough draft. The fourth-quarter estimate will be revised twice in the next couple of months, and it could increase or drop by as much as a percentage point, based on previous recalculations. After all, government statisticians have to put together the fourth-quarter estimate without complete data on construction, trade and inventories.
Trump inherited an improving economy, and during his first year in office, the trend continued and growth accelerated.
Supporters credit Trump with revving up business and consumer confidence and say tax cuts and eased regulation are fueling capital investment and job creation. They also point to a booming stock market, though market gains are not necessarily a gauge of economic underpinnings.