USA economic growth slowed in Q4, but there's hope ahead

Jenna Warner
January 29, 2017

The U.S. economy grew at an annual rate of just 1.9% in the last three months of 2016, slowing down considerably from 3.5% growth in the third quarter of a year ago, and dragged down by a significant increase in the country's trade deficit. That was a sharp deceleration from the 3.5 percent growth pace logged in the third quarter.

The U.K. economy grew 0.6 percent in the fourth quarter of 2016, the country's official statistics body said on Thursday.

The economy surged to 3.5 percent growth in the third quarter, the best growth rate in two years, driven partly by an unusually large volume of soybean exports.

Real GDP increased at an annual rate of 1.9% in the fourth quarter, according to the advanced estimate released by the Bureau of Economic Analysis. This means the United Kingdom economy grew by two per cent over the course of 2016, according to the Office for National Statistics.

The results cap growth of 1.9 percent for the full year -- near the average pace of the current expansion - and reinforce the leading role of household purchases while showing that businesses are starting to spend again. Part of the reason was slow economic growth overseas and a strengthening dollar that makes foreign goods cheaper and domestic goods more expensive, said Andrew Opdyke, economic research assistant at First Trust Portfolios LP in Chicago.

But the outlook for 2017 remains murky, largely because of Britain's reliance on its consumers, which BoE Governor Mark Carney flagged as a risk this month. Consumer spending, which accounts for more than two-thirds of the USA economy, was a relative bright spot, especially on automobiles, appliances and electronics.

That compares unfavorably to 2.6 percent in 2015 and 2.4 percent in 2014.

"Through the careful design and implementation of de-regulation, tax reform and infrastructure, the structural reform measures signaled by President Trump can spur higher growth", El-Erian said. That was the biggest net-negative from trade since the second quarter of 2010. Manufacturing increased by 0.7 percent, providing a negligible overall contribution to growth.

Britain's economy expanded at a faster-than-expected pace in the final three months of previous year as solid consumer spending supported growth and defied projections of a post Brexit-vote slowdown. Previously, inventories had been a drag on growth for five consecutive quarters. Consumption spending increased to an annual rate of $11.6 trillion, up $71.3 billion from the preceding quarter. It raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent. The ONS says the slower rate of growth was mainly due to a fall back, following a particularly strong Q3 in the motion picture and computer programming and consultancy industries. Since the economy exited recession in mid-2009, growth in the first three months of the year has tended to be much slower than the rest of the year.

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