USA economic growth revised higher, boosted by consumer spending

Real GDP for the fourth quarter of 2016 grew at a seasonally adjusted annual rate of 2.1%, according to the Bureau of Economic Analysis's third estimate, up from the second estimate of 1.9%.

Profits were dragged down by a settlement of $4.95 billion between the Volkswagen U.S. subsidiary and state and federal governments for its violation of regulations related to the environment.

The 2.1 per cent GDP growth in the fourth quarter came after a 3.5 per cent spurt of growth in the third quarter.

Data such as consumer and construction spending and trade suggest that the economy struggled as in its attempt to regain momentum during the early part of the first quarter. The Atlanta Federal Reserve is forecasting GDP rising at a rate of 1.0 per cent in the first quarter.

Growth in spending by consumers, which represents over two-thirds of the economic activity in the USA, was given a revision to 3.5% during the fourth quarter.

Despite the upward revision, the GDP growth in the fourth quarter still reflects a notable slowdown from the 3.5 percent jump seen in the third quarter.

President Donald Trump has pledged to return the United States to annual growth rates of three percent or higher, a feat many economists say is unrealistic without productivity gains and increases in the size of the labor force. Economists expected it to be revised up to 2% - so it was better than expected. That figure was unchanged from the previous report.

Some increase in demand was due to imports, which were up by 9% instead of the 8.5% increase that was reported in February. Businesses accumulated inventories at a rate of $49.6-billion in the last quarter, instead of the previously reported $46.2-billion. However, these increases were offset somewhat by a bigger trade deficit, which subtracts from GDP growth, and less business investment. Inventory investment added 1.01 percentage point to GDP growth, up from the 0.94 percentage point estimated last month.

There were no revisions to spending on equipment.

The rate of growth in household consumption was revised higher to show an annualised pace of growth of 3.5%, up from the 3.0% previously calculated. It was the worst showing in five years.

Trump vowed during the campaign to double economic growth to 4 per cent or better.

  • Zachary Reyes