US economic growth slowed more than forecast last quarter on the biggest drag from trade in six years and more moderate consumer spending. Business investment picked up, which may be a harbinger for faster expansion in 2017.
Gross domestic product, the value of all goods and services produced, rose at a 1.9 per cent annualised rate following the prior quarter's 3.5 per cent gain, the Commerce Department data showed Friday in Washington.
The median forecast in a Bloomberg survey called for 2.2 per cent. Consumer spending, the biggest part of the economy, rose 2.5 per cent, in line with projections.
The results cap growth of 1.9 per cent for the full year - near the average pace of the current expansion - and reinforce the leading role of household purchases while showing that businesses are starting to spend again.
The strong job market and optimism among consumers and companies for President Donald Trump’s policies are likely to keep growth humming along in 2017.
"The economy has strong underlying fundamentals," Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania, said before the report. "Growth should accelerate this year."
Economists’ US growth forecasts ranged from 1.7 per cent to 2.9 per cent. The GDP estimate is the first of three for the quarter, with the other releases scheduled for February and March when more information becomes available.
Growth is seen at 2.3 per cent in 2017 and 2018, based on median projections in a Bloomberg survey earlier this month.
Soybean Exports
Net exports subtracted 1.7 percentage points from expansion in the October to December period, the most since the second quarter of 2010, as the trade deficit widened following a jump in soybean shipments that helped add to growth in the third quarter.
In addition to household spending, the economy got help from business outlays on equipment, which rose 3.1 per cent for the first gain in five quarters. Inventory accumulation added the most to growth since early 2015, housing made the strongest contribution in a year and government spending picked up.
To get a better sense of underlying domestic demand, economists look at final sales to domestic purchasers, which strip out inventories and exports, the two most volatile components of GDP.
After adjusting for inflation, such sales grew 2.5 per cent last quarter, the fastest since the third quarter of 2015, following a 2.1 per cent increase.
The increase in household purchases, which account for about 70 per cent of the economy, followed the prior quarter’s 3 per cent jump. Spending added 1.7 percentage points to growth.
After-tax incomes adjusted for inflation climbed at a 1.5 per cent annual rate, a three-year low. The saving rate decreased to 5.6 per cent from 5.8 per cent.
Inventories Grow
Inventory expansion added 1 percentage point to GDP growth, as stockpiles were rebuilt at a $48.7 billion annualised pace following a $7.1 billion rate.
Non-residential fixed investment increased at a 2.4 per cent annualised pace, adding 0.3 percentage point to growth, the most in five quarters.
Investment in non-residential structures, including office buildings and factories, fell at a 5 per cent rate after a 12 percent jump.
The housing recovery continued last quarter. Residential construction increased at a 10.2 per cent annualised rate, adding 0.37 percentage point to growth. That followed a 4.1 per cent decline in the previous three months.
Government spending grew at a 1.2 per cent rate as state and local outlays picked up. Spending by federal agencies fell for the third time in a year, dropping at a 1.2 per cent pace.
The GDP report also showed price pressures remain limited. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.3 per cent annualised pace.
