Thanks to strong spending on the part of consumers, the U.S. economy slowed at lower pace than previously thought during the last quarter of the year.
According to a report in Reuters, gross domestic product (GDP) increased at a 2.1 percent annualized rate during the fourth quarter of 2016 instead of the previously reported 1.9 percent increase. Reuters cited the Commerce Department, which released its third GDP estimate for the fourth quarter on Thursday (March 30).
The Commerce Department data shows that during the third quarter, the economy grew at a rate of 3.5 percent. For all of 2016, the Commerce Department said the economy grew slightly at 1.6 percent, marking its worst full-year growth rate since 2011. In 2015, the economy expanded 2.6 percent for the full year, noted Reuters. The report noted that during the first quarter of 2017, economic activity slowed down with the trade deficit expanding in January as consumer and construction spending decreased. Reuters noted that since the labor market is close to full employment, the Commerce Department data likely “understates” the head of the economy. It also pointed out that the GDP typically is weaker in the first quarter because of issues with calculating economic activity.
“Some of this softness is due to seasonal adjustment issues that will reverse later in the year,” said Gus Faucher, deputy chief economist at PNC Financial in Pittsburgh, in the Reuters report. “Consumer spending will lead growth, thanks to higher incomes from more jobs and rising wages.”
The report noted that while the growth in the U.S. is moderate, it has been sufficient to reduce the unemployment rate but does pose a problem for President Donald Trump’s aim to boost growth in the economy each year by 4 percent by reducing taxes, boosting infrastructure spending and lowering the number of regulations. After failing to repeal and replace Obamacare last year, economists told Reuters it’s going to be tough for the President to push through his growth agenda.
“The primary question is whether the next few years will resemble the last several years with growth of around 2 percent or whether better days lie ahead,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors, in the report.