US economic growth slowed less than previously estimated in the fourth quarter as the biggest gain in consumer spending in three years partially offset the drag from a jump in imports.
Gross domestic product expanded at a 2.9 per cent annual rate in the final three months of 2017, instead of the previously reported 2.5 per cent, the Commerce Department said in its third GDP estimate for the period on Wednesday. That was a slight moderation from the third quarter’s brisk 3.2 per cent pace.
The upward revision to the fourth-quarter growth estimate also reflected less inventory reduction than previously reported. Economists polled by Reuters had expected that fourth-quarter GDP growth would be revised up to a 2.7 per cent rate.
There are signs that economic activity slowed further in the first quarter, with retail sales falling in February for a third straight month. Housing data have been generally weak and the trade deficit hit a more than nine-year high in January.
Estimates of the first-quarter GDP growth rate are currently just below 2.0 per cent. Still, analysts believe the economy will hit the Trump administration’s 3 per cent annual growth target this year, driven by a $1.5 trillion income tax cut package and a planned increase in government spending.
That could keep the door open to slightly more aggressive interest rate increases from the Federal Reserve this year. The US central bank raised rates last week and forecast at least two more hikes for 2018. The Fed also lifted its economic growth projections for this year and 2019.
The economy grew 2.3 per cent in 2017, an acceleration from the 1.5 per cent logged in 2016.
The government also reported on Wednesday that after-tax corporate profits increased at a 1.7 per cent rate in the fourth quarter after rising at a 5.7 per cent pace in the third quarter.
The government said while provisions of the income tax overhaul that came into effect in January had no effect on corporate profits for current production, they had an impact on net cash flow in the fourth quarter.
An alternate measure of growth, gross domestic income, rose at a 0.9 per cent rate in the October-December period. GDI expanded at a 2.4 per cent rate in the third quarter.
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. That followed a 2.8 per cent rate of growth in the prior period.
Prices of US Treasuries pared gains after the data. US stock index futures were mixed while the dollar .DXY was stronger against a basket of currencies.
ROBUST CONSUMER SPENDING
Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was revised up to a 4.0 per cent rate in the fourth quarter from the 3.8 per cent pace reported last month. That was the quickest pace since the fourth quarter of 2014 and followed a 2.2 per cent rate of growth in the July-September period.
Imports grew at an upwardly revised 14.1 per cent pace instead of the previously reported 14.0 per cent rate. That was the fastest pace since the third quarter of 2010 and overshadowed a rise in exports driven by weakness in the dollar.
The resulting trade deficit sliced off 1.16 percentage points from GDP growth last quarter, the most in a year, after adding 0.36 percentage point in the third quarter. Trade will likely remain a drag on GDP growth in the first quarter.
The trade deficit widened sharply in January. A separate report from the Commerce Department on Wednesday showed the goods trade deficit rising slightly in February.
While robust consumer spending curbed the accumulation of inventories, the slowdown in inventory investment was not as steep as previously reported.
Inventory investment rose at a rate of $15.6bn in the fourth quarter instead of the previously reported $8.0bn pace. Inventories subtracted 0.53 percentage point from GDP growth after adding 0.79 percentage point in the prior period.
Inventories could contribute to growth in the first quarter. The Commerce Department reported on Wednesday that both wholesale and retail inventories increased solidly in February.
Growth in business spending on equipment was revised slightly down to an 11.6 per cent rate from the 11.8 per cent pace published last month. That was still the best performance since the third quarter of 2014.
Investment in homebuilding increased at a 12.8 per cent rate, rather than the previously reported 13.0 per cent pace, after contracting for two straight quarters. Momentum likely slowed in the third quarter amid weak home sales.
Government spending grew at a 3.0 per cent rate, revised up from a 2.9 per cent pace. That was the strongest pace since the second quarter of 2015.