The Economy

U.S. GDP Growth Falls Back to 2.6% for Q4

The economy fell short of a third straight quarter of growth of 3% or more, in part because of a 13.9% surge in imports.
Matthew HellerJanuary 29, 2018

The U.S. economy couldn’t keep up its recent growth spurt, falling back to a pace below 3% in the fourth quarter amid a surge in imports.

In its first of three estimates, the Commerce Department said gross domestic product increased at a 2.6% annual rate in the October-December period. Economists polled by Reuters had forecast the economy growing at a 3.0% pace.

The third-quarter growth of 3.0% marked the first time since 2014 that the economy had experienced growth of 3% or more for two straight quarters. A streak of three consecutive quarters would have been the first since George W. Bush’s administration.

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Consumer spending continued to be the engine driving growth. With a robust holiday season, it increased at a 3.8% rate in the fourth quarter — the quickest pace since the fourth quarter of 2014.

But as Reuters reports, “The burst in consumer spending was satiated with imports, which grew at a 13.9 percent pace in the fourth quarter, the fastest since the third quarter of 2010, offsetting a rise in exports, which is being driven by dollar weakness.”

The economy grew 2.3% in 2017, an acceleration from the 1.5 percent posted in 2016. “Rising imports underscore the challenges that the Trump administration faces in its quest to boost annual GDP growth to 3 percent,” Reuters noted.

Another concern is the savings rate, which dropped to 2.6% from 3.3% in the fourth quarter compared to prior period. Overall savings fell to $384.4 billion from $478.3 billion.

But final sales to private domestic purchasers — a measure of domestic demand — rose at a 4.6% rate, the quickest since the third quarter of 2014, highlighting the economy’s strength after a gain of 2.2% pace in the third quarter.

“Just about everything you could hope for showed up in this report,” Dan North, the chief economist at Euler Hermes North America, told Markets Insider. “Despite what is clearly a disappointment on the headline, once you look past it, it’s really a great report. What’s more important is the consumer roaring ahead and this is what’s going to drive the economy forward.”