February 28, 2017
Our revised estimate of fourth quarter GDP growth came in at 1.9% which was unchanged from the original estimate. That compares to a 3.4% pace in the third quarter.
Final sales, which is GDP excluding the change in business inventories grew at a 0.9% pace in the fourth quarter compared to a 3.0% pace in the third quarter. Over the past year final sales have risen 1.9%. In the fourth quarter inventories rose $46.2 billion compared to a third quarter increase of $7.1 billion.. Thus, inventories added 1.0% to GDP growth in the fourth quarter.
Final sales to domestic purchasers excludes both the change in inventories and trade rose 2.6% in the fourth quarter versus a 2.1% increase in the third quarter. Over the past year this series has risen at a 2.1% pace. The deficit for net exports widened by $77.4 billion which means that the trade component subtracted 1.6% from GDP growth in the fourth quarter as exports declined 4.0% while imports climbed by 8.5%.
Consumption spending rose 3.0% in the fourth quarter versus a 3.0% increase in the third quarter. We expect consumer spending to increase 2.8% pace in 2017. Solid employment gains should boost income. The rising stock market will boost net worth. Expected individual income tax cuts should further stimulate spending. Everything related to the consumer seems quite solid.
Nonresidential investment climbed by 1.3% in the fourth quarter after having risen 1.4% in the third quarter. We expect nonresidential invest to increase 2.9% in 2017 and 4.5% in 2018 as business regains confidence in the wake of expected corporate tax cuts, relief from the currently onerous regulatory burden, and some repatriation of earnings from overseas.
Residential investment jumped 9.6% in the fourth quarter after having declined 4.1% in the third quarter. While demand remains strong, builders are having an increasingly difficult time finding qualified workers which curtails growth in this category. We expect residential investment to increase 3.1% in 2017.
The foreign sector as measured by the deficit for real net exports widened by $77.4 billion in the fourth quarter after having narrowed by $36.3 billion in the third quarter. Exports declined 4.0% while imports rose by 8.0%. The dollar has risen steadily since the election. It may not rise too much more during the remainder of this year. However, the deficit for net exports should subtract 0.2% from GDP growth in 2017.
Federal government spending declined 1.2% in the fourth quarter after having risen 2.4% in the third quarter. Government spending is expected to rise 1.4% in 2017 as President Trump increases defense spending while non-defense spending rises slightly.
We expect growth of 2.4% this year, and 2.7% in 2018 given expected individual and corporate tax cuts and some repatriation of earnings from overseas.