February 25, 2018

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Trump's hopes fade as GDP growth fails to beat forecasts

27 January 2018

O'Carroll said while the numbers may be revised, in the meantime they underline the IMF's "stark" message that "the world economy is doing very nicely, the United Kingdom economy less so". "Imports, which are a subtraction in the calculation of GDP, increased", the bureau said in its report. The department said a decline in private inventory investments coupled with an increase in imports, which are subtracted from the GDP calculation, accounted for the slow down.

Friday's GDP report was the preliminary estimate. Personal consumption expenditures (PCEs) roared in Q4, increasing 3.8% in its best quarter since 2016Q2.

Still, administration officials were pleased by a 2.9 percent uptick in orders for durable goods - well above the 0.8 percent increase analysts were expecting.

Also, final sales of domestic product - the level after the impact of inventory management - outpaced overall GDP at 3.2%.

GDP is a measure of how much money a country's economy generates and growth figures are an important indicator of its health. The same indicator had trailed overall GDP in Q2 (2.9% to 3.1%) and in Q3 especially (2.4% to 3.2%), which might indicate that the lag in Q4 is mainly attributable to rebalancing on inventory and that the momentum remains with the U.S. economy. According to a Reuters poll for the economists, GDP likely rose at a 3 percent annual rate supported by an increase in government outlays and a recoil in the homebuilding investment.

In May that year the department said that if the British people voted for Brexit it could push the economy into immediate recession and growth would still be zero by the last three months of 2017. Personally, I would not be surprised to see the growth rate revised up in the coming weeks. Net exports subtracted 1.13 percentage points from GDP, the most in a year. It rose 1.8% in 2016 and 2% in 2015.

William Dudley, president of the New York Federal Reserve Bank, recently raised his forecast for USA growth in 2018 by 0.5 to 0.75 percentage point to a range from 2.5 percent to 2.75 percent. Demand has also been buoyed by President Donald Trump's promise of hefty tax cuts, which was fulfilled in December when the Republican-controlled U.S. Congress approved the largest overhaul of the tax code in 30 years.

On a yearly basis, the economy expanded 1.5% in the fourth quarter, slightly faster than the 1.4% growth economists had forecast but slower than the 1.7% growth registered in the third quarter. In the 8 1/2 years of the current recovery, the growth rate has averaged 2.2 percent, the weakest expansion since the end of World War II.

"Now is the best time to bring your money, your jobs, your businesses to America", he said, pointing to recent tax reform and curbs on red tape as good for the investment climate.

Trump's economy also faces challenges from the Federal Reserve, which is slowly unwinding the extraordinary efforts it undertook over the past decade to stimulate growth.

The U.S. appears to have entered a stage of stronger economic growth, years into a historically modest expansion. "And we're going to be hitting 4 soon, and then we're going to be hitting 5s".

Trump's hopes fade as GDP growth fails to beat forecasts