Surge in imports helps curb US economic growth in Q4

Surge in imports helps curb US economic growth in Q4

Gross domestic product expanded at a 2.5 per cent annual rate in the final three months of 2017, instead of the previously reported 2.6 per cent pace, the Commerce Department said. (AFP/STR)
WASHINGTON: US economic growth slowed slightly more than initially thought in the fourth quarter after the strongest pace of consumer spending in three years depleted inventories and drew in imports as businesses struggled to produce enough goods and services.Gross domestic product expanded at a 2.5 per cent annual rate in the final three months of 2017, instead of the previously reported 2.6 per cent pace, the Commerce Department said in its second GDP estimate on Wednesday (Feb 28). That was a deceleration from the third quarter's brisk 3.2 per cent pace.The downward revision to the fourth-quarter growth estimate largely reflected a smaller inventory build than previously reported. The reliance on imports to satisfy domestic demand could further widen the trade deficit and blunt the anticipated economic boost from a US$1.5 trillion tax cut package and increased government spending.Domestic demand grew at an unrevised 4.6 per cent rate in the fourth quarter, the fastest pace in more than three years."An economy that is at or beyond full employment ... cannot match this pace of demand growth and, therefore, must either sell from inventory and/or purchase from abroad," said John Ryding, chief economist at RDQ Economics in New York.
The trade deficit is likely to worsen in the first quarter. Data on Tuesday showed the goods trade deficit widened sharply in January as exports fell, pointing to slower economic growth in the first three months of the year.The moderation in GDP was also underscored by other reports on Wednesday showing factory activity in the Midwest slowing to a six-month low in February and contracts to purchase previously owned homes tumbling 4.7 per cent in January to the lowest level since October 2014.Retail sales, home sales, durable goods orders and industrial production have also declined in January.First-quarter growth tends to be weak because of a seasonal quirk, but output is likely to accelerate for the rest of 2018 as the fiscal stimulus kicks in. GDP growth estimates for the January-March period are as low as a 1.8 per cent rate.
The economy grew 2.3 per cent in 2017, an acceleration from the 1.5 per cent logged in 2016.Economists believe the economy will hit the Trump administration's three per cent annual growth target this year, possibly putting pressure on the Federal Reserve to raise interest rates more aggressively than currently anticipated.Fed Chairman Jerome Powell struck an upbeat note on the economy before US lawmakers on Tuesday, saying "my personal outlook for the economy has strengthened since December." Powell also acknowledged that "fiscal policy is becoming more stimulative." Those remarks prompted traders to raise their bets on four rate increases this year.The Fed has forecast three rate hikes for 2018. Financial markets expect the first increase to come in March."Evidence of a strengthening economy and the potential for further acceleration fueled by fiscal stimulus are likely to keep the Fed on its prescribed tightening path," said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan.The dollar rose to a five-week high against a basket of currencies as investors continued to digest Powell's comments.Prices for longer-dated US government bonds were trading higher, while stocks on Wall Street were mixed.ROBUST CONSUMER SPENDINGGrowth in consumer spending, which accounts for more than two-thirds of US economic activity, was unrevised at a 3.8 per cent rate in the fourth quarter. 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.The acceleration in consumer spending stoked inflation, with the Fed's preferred measure, the personal consumption expenditures (PCE) price index excluding food and energy, rising at an unrevised 1.9 per cent rate. The rise in the so-called core PCE price index was the fastest in more than a year and followed a 1.3 per cent pace of increase in the third quarter.Imports grew at an upwardly revised 14.0 per cent pace instead of the previously reported 13.9 per cent rate. That was the quickest pace since the third quarter of 2010 and offset a rise in exports driven by weakness in the dollar.The resulting trade deficit sliced off 1.13 percentage points from GDP growth last quarter, the most in a year, after adding 0.36 percentage point in the third quarter.Robust consumer spending also curbed the accumulation of inventories, which increased at a rate of US$8.0 billion instead of the previously reported US$9.2 billion pace. As a result, inventories subtracted 0.70 percentage point from GDP growth after adding 0.79 percentage point in the prior period.Growth in business spending on equipment was revised up to an 11.8 per cent rate from the 11.4 per cent pace published last month. That was the best performance since the third quarter of 2014.The momentum, however, appears to be slowing, with a report on Tuesday showing a second straight monthly decline in core capital goods orders in January.Investment in homebuilding increased at a 13.0 per cent rate, rather than the previously reported 11.6 per cent pace, after contracting for two straight quarters. Government spending grew at a 2.9 per cent rate, revised down from a 3.0 per cent pace. That was the strongest pace since the second quarter of 2015.
Source: Reuters
 Source : http://www.channelnewsasia.com/news/business/surge-in-imports-helps-curb-us-economic-growth-in-q4-10000500