U.S. economic growth loses momentum in Q4 2016, likely to grow above 2 percent in 2017

The U.S. economic growth lost momentum in the December quarter coming back to the average rate of growth witnessed in the last seven and a half years. The real GDP grew 1.9 percent annualized in the fourth quarter, as compared with the 3.5 percent growth recorded in the prior quarter. It came below the market projection of 2.2 percent.

However, consumers of the U.S. did not disappoint. Spending expanded 2.5 percent in the fourth quarter, in line with median forecast. Spending on goods came in strong at 10.9 percent, while spending on services came in comparatively weak, rising just 1.3 percent. This was partially because of unseasonably warm weather depressing utility consumption, noted TD Economics in a research report.

In the fourth quarter, non-residential business investment quickened. Total business spending expanded 2.4 percent, as spending on intellectual property and equipment investment offset a decline in structures. Residential investment also grew strongly by 10.2 percent, after falling in the earlier two quarters. As was widely anticipated, net-exports weighed on growth. In all, net exports subtracted 1.7 percentage points from growth, after contributing 0.9 percentage points in the third quarter.

While the December quarter GDP growth came in below expectations, most of the weakness came from greater than anticipated recovery in imports. The details on domestic demand were more robust. Final domestic demand rose 2.5 percent, acceleration from 2.1 percent in the third quarter. Domestic demand is a better predictor of future growth than headline GDP, and the strength bodes well for the next year.

On an annual average basis, the U.S. economy expanded by a modest 1.6 percent rate in the whole of 2016, a slowdown from the 2.6 percent rate seen in 2015. But this shows a disappointing first half of 2016.

“We expect growth to accelerate above the 2.0 percent mark over the next year, supported by ongoing consumer spending growth and a firm rebound in business investment”, added TD Economics.