The Bureau of Economic Analysis said that the U.S. economy grew 2.1 percent at the annual rate in the fourth quarter, up from earlier estimates of 1.9 percent. The upward revision stemmed from better data on private inventories and spending on nondurable goods and services. This was somewhat offset, though, by a larger decline than previously reported from net exports and slightly weaker contributions from nonresidential fixed investments.
Nonetheless, the underlying trends were mostly the same. Real GDP growth was buoyed by modest growth in consumer and government spending, but net exports served as a drag on the headline number. Overall, the U.S. economy expanded 1.6 percent in 2016, down from its 2.1 percent post-recessionary average. Moving forward, I would expect 2.6 percent growth in real GDP in 2017 – a figure that will likely be assisted by pro-growth policies emanating from Washington.
Consumer and business spending were bright spots, and if those were the only two elements of GDP, fourth quarter growth would have been roughly 3.9 percent. Personal consumption expenditures rose by an annualized 3.5 percent in the fourth quarter, with a 6.0 percent gain in goods spending. Nonresidential fixed investment rose by 0.9 percent, with equipment spending positive for the first time since the third quarter of 2015. Similarly, residential spending increased 9.6 percent, reversing two quarters of declines. The change in private inventories alone added 1.01 percentage points to real GDP in the quarter, providing a positive contribution for the second straight release.
Finally, manufacturers have been challenged over much of the past two years by a number of global headwinds. This has included a rapid appreciation in the U.S. dollar, as well as economic softness to many key markets. Along those lines, the contribution to GDP from net exports slipped back into negative territory in the fourth quarter for the first time in 2016, subtracting 1.81 percentage points to the headline number. Goods imports jumped 10.9 percent in this release, with goods exports off by 6.7 percent.
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