Home Breaking News GDP for Q4 holds at 1.9%, despite consumer-spending jump

GDP for Q4 holds at 1.9%, despite consumer-spending jump

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The U.S. grew 1.9% in the final three months of 2016. Consumers did their part, but a bigger trade deficit weighed the economy down.

WASHINGTON (MarketWatch)—The growth in the U.S. economy in the final quarter of Barack Obama’s presidency was left at 1.9%, held down by a bigger trade deficit even as consumer spending rebounded strongly.

The government’s second look at gross domestic product in the fourth quarter showed a bigger increase in purchases by consumers than initially reported: 3% vs. 2.5%. What Americans spend has the biggest influence by far on GDP, the official scorecard for the U.S. economy.

Yet the increase in what consumers spent was offset by somewhat smaller gains in business investment and local and state spending, revised government figures reveal. As a result, GDP was unchanged from the original estimate.

In premarket trading, Dow Jones Industrial Average futures












YMH7, -0.17%










 was set to open slightly lower, with futures little-changed after the report was released at 8:30 a.m. Eastern Time.

Although GDP is a backward-looking number, the resilience of consumers should bode well for the economy in the months ahead. Household spending accounts for as much as 70% of U.S. economic activity.

Americans are able to spend more because of steady growth in an economy in which current expansion is nearing its eighth birthday. Millions of jobs have been created since 2010, pushing the unemployment rate below 5% and resulting in rising wages as the labor market tightens.

What’s more, a variety of surveys suggest consumers are the most optimistic in years, with Republicans and independents especially hopeful that the Trump White House will further speed up the economy.

President Trump has promised to cut taxes and reduce regulations in an effort to accelerate growth in an economy that has gone a record 11 years without reaching 3% annual GDP. The U.S. expanded just 1.6% in 2016.

Inside the report

The upward revision in consumer outlays in the fourth quarter partly reflected higher spending on new cars and trucks. Automobile sales typically improve as an economy strengthens.

The bulk of the increase, however, was in health care. Americans are spending more on health care as the population ages, but the rising cost of coverage has also eaten into the budgets of U.S. households and forced them to pare back in other areas.

Business investment, long a sore spot in the current recovery, rose in the fourth quarter but not as much as previously reported. Spending on new equipment grew a smaller 1.9% instead of 3.1%, largely accounting for cuts from prior estimates.

The value of inventories added to warehouse shelves was also trimmed to $46.2 billion from $48.7 billion.

The trade figures in the final quarter of 2016 were little-changed from the initial read. Exports fell a slightly smaller 4% and imports rose a touch faster at 8.5%.

A larger deficit can be a drag on the U.S. economy. The wide trade deficit effectively cut fourth-quarter GDP in half.

More over, the impact of trade on GDP in 2017 and beyond has become more unsettled amid efforts by Trump to revamp key deals with Mexico and other partners. The president’s goal is to make trade more fair, but the risk of a trade war has caused consternation in the U.S. and around the world.

For all of 2016, the U.S. grew just 1.6%, down from a 2.6% in 2015. The last time the U.S. topped 3% growth—the historical average is 3.3%—was in 2005.



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