United States: Slippage in net trade causes GDP to decelerate in final quarter of 2016, fuels political debate over protectionism
January 27, 2017
GDP expanded at a seasonally-adjusted annualized rate (SAAR) of 1.9% in Q4, according to an estimate released by the Bureau of Economic Analysis (BEA) on 27 January. The reading, which slightly undershot the 2.0% increase expected by FocusEconomics panelists, was well below the 3.5% increase recorded in the previous quarter and suffered from a large slippage in the net trade contribution. The Trump administration is likely to use this to justify a more protectionist stance, arguing that unfair trade is hurting the U.S. economy. A year-on-year comparison showed that GDP increased 1.6% in the final quarter of 2016, which was a notch below the previous quarter’s 1.7% expansion.
The fourth quarter’s bright spot was domestic demand, which grew at the fastest pace quarter-on-quarter in almost two years on the back of a noteworthy acceleration in fixed investment and resilient consumer spending. Growth in private consumption, the main engine of the U.S. economy, decelerated to 2.5% in Q4 from 3.0% in Q3. However, a tightening labor market and a gradual increase in wages should cause private consumption growth to accelerate again in upcoming quarters. Meanwhile, fixed investment surged in the fourth quarter to 4.2% growth, buttressed by a sizeable rebound in residential investment and the ramping up of business expenditure on equipment and intellectual property products. This was a marked improvement from Q3’s tepid 0.1% increase and the highest reading in five quarters. Government consumption also accelerated in Q4, growing 1.2% due to higher state and local government spending (Q3: +0.8% quarter-on-quarter SAAR). A large inventory correction also contributed to growth.
On the external side of the economy, exports of goods and services plunged from a robust 10.0% increase in the third quarter to a 4.3% drop in the fourth quarter. Although this mostly stemmed from a correction following Q3’s unusual jump in soybean exports, the extent of the drop suggests that the strong U.S. dollar has also weighed on the result. With imports accelerating to 8.2% in Q4 (Q3: +2.2% qoq SAAR), the net contribution of the external sector to overall growth swung from a positive 0.9 percentage points in the third quarter to a severe 1.7 percentage-point subtraction in the fourth quarter, the worst reading since June 2010.
Despite growth decelerating in the final quarter, the preliminary reading confirmed that the U.S. economy still significantly accelerated in the second half of the year overall thanks primarily to the third quarter’s healthy growth, after a stronger U.S. dollar, low oil prices and a sizeable inventory correction had weighed on H1’s performance.
Author: Ricardo Aceves, Senior Economist