GDP rises by less than expected in the 4th quarter, missing Trump’s target

source
David McNew/Getty

  • US gross domestic product, the value of every thing and service created domestically, rose at a 2.6% annualized rate in the fourth quarter.
  • This was weaker than the 3% growth rate that economists forecast and that the Trump administration set as a target.
  • Still, consumer spending, the biggest contributor to growth, grew at its fastest pace in more than a year.
  • Growth was hindered most by a widened trade deficit.

The US economy grew more slowly than expected in the fourth quarter, according to the Commerce Department’s first estimate of gross domestic product released Friday.

GDP, the value of everything produced domestically, rose at an annualized rate of 2.6% from October through December. Economists had forecast 3% growth, according to Bloomberg.

Growth in the third quarter was also revised lower, ruining what would have been the longest streak of growth above 3% since 2005. President Donald Trump has touted 3% GDP as a target for his administration, even as some polls of economists show this may not be achievable in the long term.

Still, consumer spending, which is the biggest contributor to the economy, grew at its fastest pace in more than a year, by 3.8%. Growth was partly driven by the strongest holiday shopping season in several years, according to data from Mastercard SpendingPulse. Business spending on large equipment also added to growth.

The housing market also ended the year on a sound note, with the data for December showing that new residential construction rose to a 10-year high in 2017.

“Just about everything you could hope for showed up in this report,” said Dan North, the chief economist at Euler Hermes North America. “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.”

Growth in the fourth quarter was most hindered by a widened trade deficit, as Americans bought more foreign goods than were sold overseas.

Friday’s initial GDP print will be revised two more times when the Commerce Department has more data.