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Economy in Brief

U.S. GDP Growth Slips, Held Back by Foreign Trade & Inventories
by Tom Moeller  January 26, 2018

Economic growth eased slightly at yearend as GDP posted a 2.6% advance (AR) during Q4'17, following roughly 3.0% growth in each of the prior two quarters. Growth picked up, however, from Q4-to-Q4 to 2.5%, its quickest advance in three years. Expectations had been 3.0% growth last quarter in the Action Economics Forecast Survey.

Final demand growth accelerated last quarter to 3.2% (2.2% y/y) from 2.4% as inventories subtracted 0.7 percentage point from GDP's advance. Deterioration in the foreign trade deficit subtracted an even larger 1.1 percentage point. As a result, domestic final sales exhibited a strong 4.3% gain (2.8% y/y), its quickest advance since Q3'14.

The subtraction from GDP growth due to deterioration in the foreign trade deficit occurred as a 13.9% surge (4.6% y/y) in imports outpaced 6.9% growth (4.9% y/y) in exports.

Strength in domestic final sales was exhibited throughout the economy. Personal consumption expenditures grew 3.8% (2.8% y/y), the quickest rise since Q2'16. It reflected a 14.2% surge in durable goods spending, prompted by a 16.7% jump (4.5% y/y) in spending on motor vehicles. That followed a 12.2% rise. Outlays on home furnishings & appliances strengthened 15.6% (9.5% y/y) on the heels of roughly 9.0% growth during the prior six months. Outlays on recreational products & motor vehicles surged 13.0% (9.3% y/y) following a 0.2% uptick. Nondurable goods spending improved 5.2% (3.2% y/y) as outlays on apparel surged 13.2% (4.5% y/y) following declines in two of the prior three quarters. Food & beverage spending gained 7.6% (3.0% y/y), but outlays on gasoline & other energy products fell 2.6% (-0.8% y/y), the sixth quarterly decline in two years. Spending on services improved 1.8% (1.9% y/y) following a 1.1% rise. Spending on housing & utilities improved 2.0% (1.3% y/y) after falling in three of the prior four quarters. Health care spending strengthened 2.5% (2.6% y/y) after a 4.5 rise. Recreation services outlays were little changed (+1.5% y/y) after five straight quarters of moderate growth.

Capital spending increased 6.8% (6.3% y/y), its fourth consecutive quarter of notable increase. Spending on equipment increased 11.4% (8.8% y/y) after a 10.8% gain. These increases have been accelerating for five quarters. Information processing equipment investment increased 9.1% (9.7% y/y) after a 10.8% gain while intellectual property product outlays rose 4.5% (4.8% y/y) after a 5.2% rise. Investment in industrial equipment gained 2.6% (7.4% y/y) following several quarters of strong increase. Investment in new buildings increased 1.4% (3.7% y/y) following strength in two of the last three quarters, and declines in 2016 and 2015.

Government spending improved 2.9% (0.7% y/y) after six straight quarters of zero growth. Outlays by the federal government increased 3.6% (1.1% y/y) after two quarters of lesser growth. Defense outlays surged 6.0% (4.4% y/y), the strongest of three quarterly increases. Nondefense outlays were flat or declining for all of last year. State & local government spending improved 2.6% (0.5% y/y) in Q4, the only notable quarterly gain since Q1'16.

The GDP chain price index increased 2.4% (1.9% y/y), the strongest rise since Q2'16. Growth in the PCE price accelerated to 2.8% (1.7% y/y), the strongest rise since Q2'11. It was powered by a 3.1% jump (2.3% y/y) in the services price index. The business fixed investment price index rose 0.6%, with the 1.3% y/y increase following stability in 2016. The residential investment price index gained 2.8% (3.4% y/y) following strong gains in three of the last four years. The government price index rose 2.9% y/y in 2017 after little gain during the prior two years.

The GDP figures can be found in Haver's USECON and USNA database. USNA contains virtually all of the Bureau of Economic Analysis' detail in the national accounts, including the integrated economic accounts and the recently added GDP data for U.S. Territories. The Action Economics consensus estimates can be found in AS1REPNA.

Chained 2009 $ (%, AR) Q4'17 (Advance Estimate) Q3'17 Q2'17 Q4'17 Y/Y 2017 2016 2015
Gross Domestic Product 2.6 3.2 3.1 2.5 2.3 1.5 2.9
  Inventory Effect -0.67 0.8 0.12 0.3 -0.1 -0.4 0.3
Final Sales 3.2 2.4 2.9 2.2 2.4 1.9 2.6
  Foreign Trade Effect -1.1 0.5 0.2 -0.6 -0.1 -0.2 -0.7
Domestic Final Sales 4.3 1.9 2.7 2.8 2.5 2.1 3.3
Demand Components
  Personal Consumption Expenditures 3.8 2.2 3.3 2.8 2.7 2.7 3.6
  Business Fixed Investment 6.8 4.7 6.7 6.3 4.7 -0.6 2.3
  Residential Investment 11.7 -4.7 -7.3 2.3 1.7 5.5 10.2
  Government Spending 2.9 0.7 -0.2 0.7 0.1 0.8 1.4
Chain-Type Price Index
  GDP    2.4 2.1 1.0 1.9 1.8 1.3 1.1
   Personal Consumption Expenditures 2.8 1.5 0.3 1.7 1.7 1.2 0.3
     Less Food/Energy 1.9 1.3 0.9 1.5 1.5 1.8 1.3
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