Economy Watch: US GDP Growth Tepid in Q4

Following a third-quarter surge of 3.5 percent, US GDP growth was just 1.9 percent at the end of 2016, the Bureau of Economic Analysis reported.
Source: Bureau of Economic Analysis
Source: Bureau of Economic Analysis

U.S. GDP in the fourth quarter grew at an annualized rate of 1.9 percent, a drop from the third quarter surge, when the rate came in at 3.5 percent, the Bureau of Economic Analysis reported on Friday. The estimate is the bureau’s first for the quarter, and so it is necessarily preliminary. Usually, but not always, estimates are adjusted somewhat upward in later months.

Real GDP increased 1.6 percent for all of 2016, the BEA also reported, compared with an increase of 2.6 percent in 2015. A number of factors were drags on economic growth during the year, including a downturn in private inventory investment (business spending), a deceleration in personal consumption expenditures, a downturn in nonresidential fixed investment—part of which is commercial real estate—and deceleration in residential fixed investment and in state and local government spending.

Separately, the Conference Board reported late in the week that its Leading Economic Index for the U.S. increased 0.5 percent in December to 124.6 (2010 = 100), following a 0.1 percent increase in November, and a 0.2 percent increase in October. Put together, those too point to a relatively tepid fourth quarter.

Even so, stronger expansion is possibly ahead. “The U.S. Leading Economic Index increased in December, suggesting the economy will continue growing at a moderate pace, perhaps even accelerating slightly in the early months of this year,” said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board. “December’s large gain was mainly driven by improving sentiment about the outlook.”