A new report from the Bureau of Economic Analysis (BEA) showed that U.S. gross domestic product (GDP) growth cooled in the fourth quarter of 2017. Specifically, real GDP, which measures the value of the production of goods and services in America adjusted for price changes (inflation), increased at an annual rate of 2.6 percent in Q4. That is down from Q3's 3.2 percent pace of expansion, slightly worse than the 2.9 percent gain economists anticipated, and the weakest headline growth reading since Q1.
However, this matches the seasonal pattern observed over the past few years (chart below), and 2017 still averaged the best quarterly GDP growth since 2014. Most of the weakness in Q4 was due to the widening trade deficit, as imports rose at roughly double the pace of exports. More importantly, consumer spending, which accounts for about 70 percent of the economy, jumped by 3.8 percent in Q4, the best gain since Q2 2016. That is likely a reflection of a healthy labor market, muted inflation pressures, and relatively low borrowing costs. Further, business equipment investment in Q4 expanded at the fastest clip in three years, perhaps helped by optimism about the prospects for tax reform. Altogether, this was another good but not great GDP report, especially given how late it is in the current economic cycle. It is worth remembering, though, that significant revisions are possible over the next few months.
Sources: Econoday, Bloomberg, ZH, U.S. BEA, FRBSLPost author: Charles Couch