Economy grew 2.1% in Q4, faster than believed

Economy grew 2.1% in Q4, faster than believed
Consumer spending drove economic growth in the fourth quarter.

The economy grew a bit more rapidly than believed in the fourth quarter as stronger consumer spending more than offset weaker business investment and trade, setting the stage for a better performance in 2017.

The nation’s gross domestic product increased at a seasonally adjusted annual rate of 2.1%, up from the previous 1.9% estimate, the Commerce Department said Thursday. Economists expected an upward revision to 2% growth.This was the third and final estimate of economic growth in the fourth quarter.

The economy expanded by just 1.6% in 2016, below the 7 ½-year-old recovery’s modest 2.2% pace. Many economists expect similar 1.5% growth in the first quarter because of slower business stockpiling and sluggish spending on utilities due to mild winter weather.

But a pickup to a 2.3% pace is anticipated for all of 2017, stoked largely by a healthy consumer, according to a survey by Wolters Kluwer Blue Chip Economic Indicators. President Trump’s plans for tax cuts and increased spending are also expected to provide a modest boost to the economy later this year.

In the fourth quarter, consumer spending grew a robust 3.5%, above the 3% previously estimated. Solid job growth, cheap gasoline and the stock market rally prodded many Americans to step up their purchases. Consumer confidence hit a 16-year high in February, boding well for consumption in the months ahead. Household spending makes up about 70% of economic activity.

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“The consumer is firmly in the driver’s seat and has their foot down hard on the gas pedal ensuring that real growth continues to run faster than potential,” economist Chris Rupkey of Bank of Tokyo-Mitsubishi wrote in a note to clients.

And business stockpiling contributed about 1.01 percentage point to growth, more than previously thought.

But business investment increased 0.9%, below the previous 1.3% estimate. The oil sector’s rebound continued to bolster outlays for steel pipes and other materials but the upswing in capital spending has been tempered in part by sluggish exports.

Exports fell 4.5%, more than the prior 4% estimate, while imports grew faster than believed at 9%, widening the nation’s trade deficit. U.S. Shipments have been hampered by a strong dollar that makes them more expensive for overseas buyers and a global economy that’s recovering slowly.

And spending by state and local governments was also slightly weaker than previously estimated, rising just 1% amid lower personal income and sales tax revenue.