U.S. economy expands strongly in Q4 2017, consumers drive economic growth

The BEA’s advance estimate showed that the U.S. economy expanded at an annualized rate of 2.6 percent in the fourth quarter of last year. This is a bit below market projections of a 3 percent growth. However, the fourth quarter print is very solid nonetheless.

As anticipated, the economic growth was driven by consumers as spending expanded 3.8 percent, recovering from a hurricane-dampened 2.2 percent rate in the third quarter. Purchases of durable goods were the major story, rising 14.2 percent driven by solid motor vehicles growth. The requirement to replace cars damaged by late summer hurricanes stimulated purchases in the fourth quarter. Furthermore, non-durable goods spending were also likely stimulated by hurricane-related restocking, rising 5.2 percent, while services spending rose modestly by 1.8 percent.

Business investment rose 6.8 percent, whereas spending on equipment rose 11.4 percent, rebounding on the considerable momentum that built through 2017. Growth in intellectual property outlays were up 4.5 percent, while non-residential structures rose a more modest 1.4 percent.

Residential investment rose 11.6 percent, snapping two-quarters of contraction. Residential structures were affected by disruptions related to Hurricanes Harvey and Irma in the third quarter, with activity evidently recovering in the fourth quarter.

With domestic demand running full tilt, imports also recovered 13.9 percent, following two quarters of unexpected softness. Exports also rose strongly by 6.9 percent; however, that was not sufficient to keep net exports from putting a considerable drag on growth. Net exports negative contributed 1.1 percentage points from growth as a whole, after adding 0.4 percentage points to the real GDP growth in the prior quarter.

Inventory investment also weighed on the headline growth, negatively contributing 0.7 percentage points from the headline figure.

The headlines might read that the economic growth was below expectations in the fourth quarter; however, with final domestic demand rising 4.3 percent in the quarter, it is difficult to see any real disappointment in today’s report, noted TD Economics in a research report.

“The Fed already knew that the economy had healthy momentum to end 2017, but the hard numbers give further comfort and support the case for another rate hike in March”, added TD Economics.

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