Third Look at GDP Growth in the Fourth Quarter – A Little Better, Hail Consumers

The third estimate of real GDP growth in the fourth quarter of 2016, from the Bureau of Economic Analysis (BEA), shows slightly faster economic growth, a 2.1% annual rate, up from 1.9% in the earlier estimate(s). Personal consumption expenditures (PCE) gets all the credit; fixed investment, trade and government spending all declined. PCE rose at a 3.5% rate, up from 3.0% in the second estimate.

Business fixed investment was mixed, the structures component declined less, but the intellectual property component was weaker. Inventory investment pushed total investment slightly higher, while equipment spending and residential fixed investment were unchanged.

Exports declined faster and imports, which subtract from GDP growth, rose slightly faster. State and local government spending was weaker than in the prior estimate, and federal government spending was unchanged.

The third estimate doesn’t materially change the overall outlook: consumer spending is the primary contributor to growth, business investment will need to rebound to generate faster GDP growth, a strong US dollar will limit growth from trade, and it remains to be seen what will happen with federal government spending.

 

 



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