United States: Second estimate confirms GDP slowdown in Q4
February 28, 2017
A second estimate released by the Bureau of Economic Analysis’ (BEA) on 28 February showed that GDP expanded at a seasonally-adjusted annualized rate (SAAR) of 1.9% in Q4, confirming January’s preliminary estimate. The result disappointed market analysts who had expected an upward revision to 2.1% and represented a deceleration from the 3.5% expansion in Q3. In year-on-year terms, GDP increased 1.9% in Q4 (previously reported: +1.6% year-on-year), which led the economy to expand 1.6% in 2016 as a whole, a deceleration from the 2.6% increase in 2015.
Growth in Q4 remained unchanged in the second estimate as an upward revision to private consumption growth offset a downward revision to gross fixed investment. Private consumption—which accounts for over two-thirds of U.S. GDP—was revised upward to a 3.0% expansion in the second estimate from the 2.5% pace reported in January. At a 3.0% SAAR in Q4, household spending maintained the growth rate observed in Q3. Solid household consumption through 2016 was the result of a healthy labor market, rising wages and relatively low inflation. That said, gross fixed capital formation was cut by 1.0 percentage points to a 3.2% increase in the second estimate from a previous 4.2% expansion. Nonetheless, the increase in investment in the final quarter was well above the previous quarter’s 0.1% rise. Growth in government spending was also cut from the initial estimate. Government consumption increase just 0.3% in Q4, which was notably revised from the 1.2% expansion reported earlier, and now marks a deceleration compared to the 0.8% rise in Q3. This time, inventories did not experience a sizable adjustment.
On the external front, exports of goods and services swung from a 10.0% increase in Q3 to a 4.0% contraction in Q4. The second estimate for exports was only revised up mildly from the 4.3% decrease reported previously. Meanwhile, revised imports surged 8.5% in Q4 (previously reported: +8.2% SAAR), which accelerated significantly from a 2.2% increase in Q3. With imports accelerating so strongly, net exports slashed 1.7 percentage points from overall economic growth in Q4, which contrasted a 0.9 percentage-point contribution in the previous quarter.
President Trump held his first joint address to Congress on 28 February. As expected, the speech did not include details about his economic policy, which caused a fairly muted market reaction. Trump repeated that he and his economic team are working on a “historic tax reform”, cutting taxes for both businesses and households. He also mentioned the taxation of imports, without being specific about a potential border adjustment tax (BAT). The President also asked Congress, “to approve legislation that produces a USD 1 trillion investment in the infrastructure of the United States.” In addition, Trump went on to reaffirm that he wants free, “but fair” trade, which confirms his protectionist view.
Author: Ricardo Aceves, Senior Economist