Saturday, 24 February, 2018

WRAPUP 5-Robust imports slow United States economic growth in fourth quarter

Donald Trump U.S. GDP Grows 2.6% Slower Than Forecast The Associated Press by John Carney26 Jan 20180 26 Jan 2018 26 Jan 2018
Nellie Chapman | 27 January, 2018, 00:49

The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment that was partly offset by accelerations in PCE, exports, nonresidential fixed investment, state and local government spending, and federal government spending, and an upturn in residential fixed investment.

This was weaker than the 3% growth rate that economists had forecast, and that the Trump administration has set as a target. Personally, I would not be surprised to see the growth rate revised up in the coming weeks.

However, for the whole year, the economy expanded 2.3 percent, higher than the 1.5-percent increase in 2016. It seems to me this is likely to be the leading variable if the USA economy outpaces expectations in 2018. President Donald Trump's goal is for USA economic growth of 3.0 percent annually and the Republican-controlled Congress in December pushed through a $1.5 trillion package of tax cuts in the largest overhaul of the tax code in 30 years in an attempt to boost growth. I continue to believe that there is upward potential in that outlook for next year, especially as firms increase their investments.

By the way, do note how the Reuters excerpt above forecasts 3.0 percent growth in 2018, and cites three reasons: A weak dollar, rising oil prices and a stronger global economy. But the result is subject to revision as more data become available. Durable and nondurable goods spending were jumped 14.2 percent and 5.2 percent, respectively, for the quarter.

So in a sense, it's a measure of the economy's strength that increased consumer spending power resulted in the spike in imports. In total, personal spending contributed 2.58 percentage points to real GDP growth-suggesting that the other components of headline growth essentially offset one another. Government spending notched its fastest pace since the second quarter of 2015.

GDP growth slowed in the year's fourth quarter to an annualized rate of 2.6, breaking a two-quarter streak of growth of more than 3 percent.

The surge, however, came at the expense of savings, which fell to $384.4 billion from $478.3 billion in the third quarter.

Growth in the fourth quarter was hindered the most by a widened trade deficit, as America exported less than it imported. Inventory investment also restrained GDP growth in the fourth quarter, subtracting 0.67 percentage point from output after adding 0.79 percentage point to output in the prior period.

Analysts highlighted the positive signs within the report, including strong spending and investment, but cautioned that growth in the first quarter of this year could be below trend, as in recent years. The left often argues that redistributive policies will result in more growth because low-income people who find themselves with extra cash usually spend it.