Q4 GDP: What Low Economic Growth Means for 2017

Posted January 28, 2017

Gross domestic product, the value of all goods and services produced, rose at a 1.9 percent annualized rate following the prior quarter's 3.5 percent gain, Commerce Department data showed Friday in Washington. GDP, the broadest measure of economic health, was held back by a jump in the trade deficit.

GDP grew 2.6 percent in 2015, and since the recession ended in mid-2009, growth has averaged a weak 2.1 percent.

While economists look fairly positively on the progress that the US has made since the recession, current GDP growth is far below the 4 percent target President Donald Trump has said he is aiming for. Economists expected 2.2% growth.

Inventory expansion added 1 percentage point to GDP growth, as stockpiles were rebuilt at a $48.7 billion annualized pace following a $7.1 billion rate.

For the full year the price index increased 1.1% compared to 2015, while the core was up 1.7%, the fastest since 2012. It had been up by around 0.3 per cent ahead of the announcement. That was the biggest drag since the second quarter of 2010.

The US economy slowed a year ago to register its worst performance since 2011 after the strong dollar sent exports tumbling and encouraged American businesses to import cheaper components from overseas.

But a sharp reversal in exports - down 4.3% after a 10% increase in the previous quarter - and slower pace of consumer spending growth in the fourth quarter offset an improvement in business investment.

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The BEA said the GDP deceleration was partly due to a downturn in exports and an increase in imports.

Rebuilding of business stockpiles added 1 percentage point to growth in the fourth quarter. Equipment spending increased 3.1% after declining for four quarters.

Investment in home building probably rebounded after two straight quarters of decline, making a modest contribution to growth.

Economists said that the data was unlikely to prevent the USA central bank, the Federal Reserve, from raising interest rates again soon. Looking ahead in 2017, we expect the core drivers of growth to be similar to 2016's - it's all about consumption while business investment and government spending are significant question marks.

Sung Won Sohn, an economics professor at California State's Martin Smith School of Business, said there is a lot of uncertainty at the moment about Trump's program since the new administration has yet to put forward its plan for Congress to consider. The Office of Budget Responsibility, an independent government agency, said that growth will slump to just 1.4% in 2017, the weakest since 2009, according to International Monetary Fund data.

- The BEA's own "bottom line" final sales growth rate dropped over 2% and was below 1% (+0.87%) - once rapidly growing inventories were factored out.