Washington (AFP) – The US economy grew significantly faster at the end of 2017 than previously reported, as consumer spending hit an three-year high and business investment rose, the government reported Wednesday.
The rosier revised estimate for the October-December period was a modest shot in the arm for President Donald Trump, whose trade policies face stiff opposition at home and abroad and has sent shudders through stock markets.
GDP grew 2.9 percent in the final three months of last year, 0.4 points higher than the prior estimate, the Commerce Department said. And that rate was significantly faster growth than analysts were expecting.
The third and final quarterly estimate, based on a fuller set of data, marked the third quarter in a row at or around President Donald Trump’s target of three percent annual growth.
And the new estimate does not account for December’s sweeping $1.5 trillion tax cuts, which economists say should boost growth in the near term at least for a short time.
“Consumer spending appears to have had its strongest quarter in three years,” Oxford Economics said in a research note, adding that tax cuts and stronger government spending should fuel GDP in 2018.
But for all of 2017 the growth rate was unchanged at a modest 2.3 percent, faster than the 1.5 percent posted in 2016, but still well below Trump’s goal and the 2.9 percent expansion seen in 2015.
The Trump administration is counting on an acceleration of growth to pay for the December tax cuts, which are expected to swell the budget deficit and add to the mounting US sovereign debt.
However, economists point to stagnating US productivity and a possible trade war as a drag on growth, and warn the tax cuts will drive the Treasury deeper into the red.
– Corporate profits slide –
The upward bump to the fourth-quarter growth estimate came from higher consumer spending, higher wholesale business inventories and updated statistical adjustments to account for seasonal factors, according to the Commerce Department.
Consumption hit the highest pace in three years, as consumer spending on goods saw its biggest quarterly bounce in nearly 12 years after an upward revision of three tenths to 7.8 percent.
Consumer spending on transportation pushed US services growth to 2.3 percent in the quarter, up two tenths from the prior estimate.
Those results helped offset the economic drag from rising imports, after the US trade deficit hit a nine-year high in 2017.
Despite the accelerating economic growth, corporate profits stagnated in the quarter, falling 0.1 percent after the prior quarter’s $90.2 billion increase.
The financial sector saw a $14.6 percent decrease but the non-financial sector experienced a $19.4 billion increase for the quarter.
Profits for 2017 were up $91.2 billion after the $44 billion decline in the prior year.
The December tax cuts imposed a one-time repatriation tax on foreign earnings, recorded as a $250 billion quarterly capital transfer from businesses to the federal government, according to the Commerce Department.
“We judge the economy by nonfinancial domestic profits, capital spending, and employment and these metrics look solid in 2017,” RDQ Economics said in a research note.
And companies were expected to reap the benefits of lower taxes in the coming year.
Current forecasts point to growth of below two percent in the first quarter of 2018, although first quarters typically are slower than annual growth.