United States 4Q GDP growth revised up to 2.9%; consumer spending surges

Anna Jefferson
March 30, 2018

"The fourth-quarter slowdown in consumer spending occurred as purchasing power continued to be squeezed by higher inflation and muted earnings growth", said Howard Archer, chief economic adviser at EY's Item Club.

However, economists say this may be unrealistic and current forecasts point to growth of below 2 per cent in the first quarter of 2018, although first quarters typically are slower than annual growth.

"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".

But for the full year the growth rate was unchanged at 2.3%, faster than the 1.5% seen in Y 2016.

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The government also reported on Wednesday that after-tax corporate profits increased at a 1.7 percent rate in the fourth quarter after rising at a 5.7 percent pace in the third quarter. Expectations for Q4 were to have seen a 20 basis-point rise from the previous read's 2.5%, but the results were even stronger: 2.9% for Q4 GDP, very almost marking the third straight quarter of 3% growth. However, there are signs that economic activity slowed down in Q1 2018, with retail sales falling in February for the third consecutive month.

An alternate measure of growth, gross domestic income, rose at a 0.9 percent rate in the October-December period. The US dollar firmed against a basket of currencies, pushing further away from a five-week low in the prior session.

The upward bump in the Q-4 GDP estimate came from higher consumer spending on transportation, higher wholesale business inventories and updated statistical adjustments to account for seasonal factors, according to the Commerce Department.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 1.9 per cent rate in the fourth quarter.

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However, economists point to stagnating United States productivity and a possible trade war as drags on growth, and warn the tax cuts will drive the Treasury deeper into the red.

The trade deficit widened sharply in January.

Investment in homebuilding increased at a 12.8 percent rate, rather than the previously reported 13.0 percent pace, after contracting for two straight quarters.

The government spending has risen by 3%, with data revised from the previous 2.9%. And that rate was significantly faster growth than analysts were expecting.

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