United States: Second GDP release confirms U.S. economy kept on a steady course in Q4
February 28, 2018
A second GDP estimate confirmed the economy continued to grow at a healthy clip in the fourth quarter of last year, supported by solid private outlays and resilient business investment growth. GDP increased 2.5% in seasonally-adjusted annualized (SAAR) terms in Q4, down 0.1 percentage points from the preliminary estimate released in January. The marginal downward revision was in line with market expectations and followed a 3.2% increase recorded in the third quarter. On a year-on-year basis, GDP growth was reaffirmed at an over two-and-a-half-year high of 2.5% in Q4, up from the 2.3% increase recorded in Q3.
A notable subtraction from inventories and the external sector masked an otherwise very solid performance in the fourth quarter. The domestic sector performed brilliantly, with household spending growth unchanged from the first estimate at a encouraging 3.8% increase in SAAR terms (Q3: +2.2% SAAR). Expected downward revisions to spending on durables and non-durables following recent downward revisions to retail trade data were balanced out with an upward revision to figures for service spending. Government consumption growth was revised down a tick to 2.9% in the fourth quarter, a nonetheless robust figure that followed a much weaker 0.7% increase in the third quarter.
A strong performance in consumer-related components was also seen in residential fixed investment growth, which got a noticeable upgrade to 13.0% SAAR from the 11.6% expansion initially reported, marking the best figure in nearly two years. Hurricane-induced restocking operations and reconstruction efforts buoyed the quarter’s figure. Conversely, non-residential fixed investment was revised down 0.2 percentage points to a 6.6% increase in the fourth quarter, still above the 4.7% rise recorded in the third quarter. The downward revision reflected a softer increase in intellectual property investment outstripping mild upgrades to structure and equipment investment. Meanwhile, inventories pulled down the headline by 0.7 percentage points.
The external sector painted a very different picture, with solid domestic demand causing import growth to soar in the fourth quarter. Imports were up 14.0% in SAAR terms in Q4, a marginal upgrade from the 13.9% increase reported in the advance estimate and a contrast to the 0.7% decline recorded in the previous quarter. Exports were upgraded 0.2 percentage points but still fell short of the increase observed in imports, recording a 7.1% increase in Q4 (Q3: +2.1% SAAR). The sector subtracted 1.1 percentage points from overall growth in the fourth quarter, unchanged from the previous estimate and swinging from the 0.4 percentage-point contribution recorded in the third quarter.
All in all, the second GDP release showed only insignificant changes to the composition of growth in the fourth quarter, with a small downward revision in the headline figure foreseen for the most part by market participants. The report reaffirmed FocusEconomics panelists’ view that economic momentum persisted in the fourth quarter, while high-frequency data suggests that most tailwinds carried over into the first quarter of this year. Moreover, tax cuts approved in December and the recent lift in federal spending caps should provide further stimulus in the quarters to come, improving the short-term outlook for the U.S. economy.
Author: David Ampudia, Economist