US economy grows 2.6% in Q4 2017

GDP beats expectations with 0.5% rise in Q4

"The Trump administration had targeted 3% growth but despite the latest figures falling below expectations, the President still has reasons to be bullish".

The advanced official estimate of US GDP showed the economy grew at a 2.6% pace in the fourth quarter, behind economists´ forecasts of 3%.

Britain's economy defied expectations by surging in the final three months of past year, with annual growth nearly four times higher than economists had expected after the Brexit vote.

Total orders for big-ticket US-manufactured goods rose 2.9 per cent compared to November to US$249.4 billion, the biggest jump in six months, leaping past economists' predictions of a 0.9 per cent gain.

Signs of rising inflation together with a tightening labor market could put the Federal Reserve on a more aggressive path of interest rate increases than is now being anticipated, economists say.

"The details are much better than the headline", said Tom Simons, senior economist at Jefferies.

Growth in the fourth quarter was most hindered by a widened trade deficit, as Americans bought more foreign goods than were sold overseas. "Both on the consumer and the business side, there a lot of momentum". At the same time, "trade might be a more persistent weakness". The strength in imports reflects the very strong US domestic demand - business investment as well as consumption.

Net trade and inventories subtracted significantly from fourth quarter GDP, as imports surged 13.9 percent relative to the healthy 6.9 percent annualized increase in exports. The gap between merchandise exports and imports in December was the biggest since 2008. Treasury Secretary Steven Mnuchin said this week that the weak dollar was good for US trade, pushing the greenback to a three-year low amid fears the USA was stoking a trade war and was willing to use the currency to win it. The price index for personal-consumption expenditures rose at a 2.8% pace in the fourth quarter, in part due to higher oil prices. Such sales grew 4.3% last quarter, the most since 2014.

"The boost to the economy at the end of the year came from a range of services including recruitment agencies, letting agents and office management", said Darren Morgan, head of GDP at the ONS. "This is far from doom and gloom".

Consumer spending rose 3.8% - its strongest pace in almost two years. Government spending increased at a solid 3.0 percent, quickening from the July-September period's pedestrian 0.7 percent growth pace. These movements were partly offset by decelerations in residential fixed investment and in state and local government spending.

The 2018 first quarter GDP estimate will probably be affected by a statistical quirk. Business equipment investment expanded at an 11.4% rate.

That was slower than analysts forecast and meant growth for the year was 2.3 per cent, better than the 1.5 per cent gain in 2016 but well below 2015's 2.9 per cent. The unemployment rate dropped seven-tenths of percentage point last year to a 17-year low of 4.1 percent.

"The economy's performance over the course of 2017 has been more mixed than overwhelmingly positive", Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note before the report.



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