A report released by the Commerce Department on Friday showed weaker than expected U.S. economic growth in the fourth quarter of 2017.
The report said real gross domestic product increased by 2.6 percent in the fourth quarter compared to the 3.2 percent growth seen in the third quarter. Economists had expected GDP to climb by 3.0 percent.
The Commerce Department said the increase in GDP in the fourth quarter reflected positive contributions from consumer spending, non-residential fixed investment, exports, residential fixed investment, and government spending.
However, the positive contributions were partly offset by a negative contribution from private inventory investment and an increase in imports, which are a subtraction in the calculation of GDP.
While the pace of GDP growth slowed more than expected, final sales climbed by 3.2 percent and final sales to domestic purchasers jumped by 4.3 percent.
"In other words, despite the weak headline, this is not a weak report," said Chris Low, chief economist at FTN Financial.
The report said consumer spending surged up by 3.8 percent in the fourth quarter after increasing by 2.2 percent in the third quarter.
Compared to the previous quarter, exports, non-residential fixed investment, and government spending also accelerated and residential fixed investment turned higher.
Meanwhile, the Commerce Department said private inventory investment turned lower compared to the previous quarter and imports spiked by 13.9 percent in the fourth quarter after falling by 0.7 percent in the third quarter.
Trade subtracted 1.1 percentage points from GDP growth, but Michael Pearce, Senior U.S. Economist at Capital Economics, said, "That is partly payback from the hurricane disruption earlier in the year and will not be sustained."
"With the dollar continuing to depreciate early in 2018, net trade is likely to provide a small boost to growth this year," Pearce added.
A reading on core consumer prices, which exclude food and energy prices, showed that the pace of price growth accelerated to 1.9 percent in the fourth quarter from 1.3 percent in the third quarter.
"GDP fell short because companies did not produce enough to keep pace with demand, resulting in a surge in imports and a shortfall in inventory investment," said FTN's Low.
He added, "Given the strongest business confidence in decades and expectations of still stronger tax-cut fueled growth to come, companies are almost certain to kick production up a notch in 2018."
by RTT Staff Writer
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