Final reading on US Q4 GDP is up 2.9%, vs 2.7% growth expected

  • U.S. economic growth slowed less than previously estimated in the fourth quarter.
  • Gross domestic product expanded at a 2.9 percent annual rate in the final three months of 2017, up from the previously reported 2.5 percent.
  • The biggest gain in consumer spending in three years partially offset the drag from a surge in imports.

U.S. 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 surge in imports.

Gross domestic product expanded at a 2.9 percent annual rate in the final three months of 2017, instead of the previously reported 2.5 percent, 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 percent 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 percent rate. The economy grew 2.3 percent in 2017, an acceleration from the 1.5 percent logged in 2016.

The government also reported that after-tax corporate profits increased at a 1.7 percent rate in the fourth quarter after rising at a 5.7 percent pace in the third quarter.

An employee inspects a component for hybrid electric vehicle motors at the Toshiba International manufacturing facility in Houston, Texas.
Matthew Busch | Bloomberg | Getty Images
An employee inspects a component for hybrid electric vehicle motors at the Toshiba International manufacturing facility in Houston, Texas.

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 impacted on net cash flow in the fourth quarter.

An alternate measure of growth, gross domestic income, rose at a 0.9 percent rate in the October-December period. GDI expanded at a 2.4 percent 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 percent rate in the fourth quarter. That followed a 2.8 percent rate of increase in the prior period.

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.

Still, analysts believe the economy will hit the Trump administration's 3 percent 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 U.S. central bank raised rates last week and forecast at least two more hikes for 2018. The Fed lifted its economic growth projections for this year and 2019.

Robust consumer spending

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up to a 4.0 percent rate in the fourth quarter from the 3.8 percent pace reported last month. That was the quickest pace since the fourth quarter of 2014 and followed a 2.2 percent rate of growth in the July-September period.

Imports grew at an upwardly revised 14.1 percent pace instead of the previously reported 14.0 percent rate. That was the quickest pace since the third quarter of 2010 and overshadowed a rise in exports driven by weakness in the dollar.

The resulting trade deficit sliced 1.16 percentage points from GDP growth last quarter, the most in a year, after adding 0.36 percentage point in the third quarter.

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 $15.6 billion in the fourth quarter instead of the previously reported $8.0 billion pace. As a result, inventories subtracted 0.53 percentage point from GDP growth after adding 0.79 percentage point in the prior period.

Growth in business spending on equipment was revised slightly down to an 11.6 percent rate from the 11.8 percent pace published last month. That was still the best performance since the third quarter of 2014.

Investment in homebuilding increased at a 12.8 percent rate, rather than the previously reported 13.0 percent 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 percent rate, revised up from a 2.9 percent pace. That was the strongest pace since the second quarter of 2015.