American economic growth slowed appreciably in the fourth quarter dragged down by the trade deficit and moderating consumer spending. Business investment rose in line with increased optimism since the election.
Gross domestic product, the widest measure of a nation’s economic activity, advanced at a 1.9 percent annual pace, barely half of the prior quarter’s 3.5 percent rate, reported the Commerce Department on Friday. The median forecast from the Reuters survey was for 2.2 percent, with a range from 1.0 percent to 3.3 percent. The Atlanta Federal Reserve GDPNow model had predicted 2.9 percent. Consumer spending, at 70 percent of GDP the largest portion of the economy gained 2.5 percent as predicted.
This brings GDP expansion in 2016 to 1.975 percent down marginally from 2.0 percent in the first three quarters but up from 1.775 in 2015. The 2.1.percent average for the past eight years has been the weakest recession recovery since the Second World War.
Consumer and business attitudes have turned considerably more positive since the election of Donald Trump to the White House in November. Both groups seem to judge that the new administration’s policies will be more business friendly than in the past.
The University of Michigan Consumer Sentiment Index for January, released on Friday, scored 98.5 the highest since January 2004. The measure of current conditions came in at 111.30, its best measurement in a decade. The expectations component at 90.3 was the strongest since January 2015 and the second highest since January 2014.
The Institute for Supply Management manufacturing index for December scored 54.5, well ahead of the 53.6 forecast and the best reading since December 2015. The gauge of service industries rose to 56.5 in December from 55.0 the previous month. It was the highest for this gauge since October 2015.
Net exports subtracted 1.7 percentage points from GDP in the fourth quarter, the biggest deflection since the second quarter of 2010. The unusually large amount of soybean exports in the third quarter which had added to GDP was not repeated.
The economy also got help from business investment, which rose 3.1 percent for the first gain in five quarters. and is expected to continue to rise this year.
Inventory accumulation added 1 percent to growth, the most since early 2015. Home construction increased at a 10.2 percent annual rate, adding 0.37 percent to GDP. Government expenditures rose by 1.2 percent across all three levels though spending by federal agencies in Washington dropped for the third year in a row.
Chief Market Strategist
WorldWideMarkets Online Trading