U.S. Economy Grew at 2.6% in 4Q
OREANDA-NEWS. January 30, 2018. “The economy’s sustainable trend is around 2 percent,” Mr. Prakken said.
The Commerce Department’s report on the gross domestic product — which showed growth for all of last year at 2.3 percent — is a rough draft. The fourth-quarter estimate will be revised twice in the next couple of months, and it could increase or drop by as much as a percentage point, based on previous recalculations. After all, government statisticians have to put together the fourth-quarter estimate without complete data on construction, trade and inventories.
Mr. Trump inherited an improving economy, and during his first year in office, the trend continued and growth accelerated. Supporters credit Mr. Trump with revving up business and consumer confidence, and say tax cuts and eased regulation are fueling capital investment and job creation. They also point to a booming stock market, though market gains are not necessarily a gauge of economic underpinnings.
The president ticked off those items on Friday when he hailed America’s economic strength at the World Economic Forum’s annual meeting in Davos, Switzerland, where global leaders have been sharing encouraging economic news all week.
The American economy recovered from a plodding start in the first three months of 2017, when sharp cuts in consumer spending limited G.D.P. growth to 1.2 percent on an annualized basis. It sprang back over the next six months, with the rate reaching 3.1 percent in the second quarter and 3.2 percent in the third.
In the fourth quarter, holiday shoppers were enthusiastic, and spending on business and residential housing was up. A persistent appetite for foreign goods continued to widen the trade deficit — it reached nearly $72 billion for goods alone in December — and dragged down gains. But inventory declines that detracted from G.D.P. last quarter should rebound over the next as businesses refill empty shelves.
The American economy’s performance has also been buoyed by simultaneous growth in nations around the world, which has fueled trade and enabled foreign consumers to buy more American-made products.
For several years after the recession, the United States’ steady if unremarkable growth was a bright spot compared with struggling economies abroad. Under President Barack Obama, who took office when the economy was floundering, yearly growth averaged 2.1 percent during the recovery. After a high of 2.9 percent in 2015, it dropped to 1.5 percent in 2016.
But in 2017, more than eight years into the nation’s recovery, the expansion spread to at least 120 countries, according to a report released this week by the International Monetary Fund. In several, growth rates outpaced that of the United States. Among large economies in the Group of 7, the United States ranked fifth, according to a report from the World Economic Forum. On a list of 29 advanced economies, it ranked 10th, though it sank close to the bottom in terms of equitably sharing the gains.
Exhilarating stock market gains have also been a worldwide phenomenon. Lawrence H. Summers, the Harvard economist and former Treasury secretary, pointed out that the major stock indexes in Japan, Hong Kong, Germany and South Korea registered gains comparable to the Standard & Poor’s 500-stock index, if not better.
“The U.S. performance doesn’t stand out relative to the rest of the world,” he said.
The I.M.F. warned against assuming that the current economic cycle would go on indefinitely, however, particularly given the towering debt of the United States and other countries. By borrowing so much, the government can crowd out other investors and drive up interest rates. At the same time, giant deficits crank up pressure to cut government spending on health care and housing, policing and schools. With less money to go around, spending dries up and consumer demand — the economy’s primary engine — slows.
“Political leaders and policymakers must stay mindful that the current economic momentum reflects a confluence of factors that is unlikely to last for long,” said Maurice Obstfeld, the I.M.F.’s chief economist.
Despite all the attention that the growth statistics engender, economists warn against reading too much into G.D.P. figures. In recent years, more and more experts have noted the increasing difficulty in measuring a knowledge-based economy where services like Facebook and Google are free and innovations and improvements often lack an accurate price tag.
An additional, unexpected flaw in recent United States data may come more sharply into focus this year. G.D.P. figures may have been artificially lowered over the last decade because of tax policies that encouraged domestic-based multinationals to shift billions of dollars in domestic profits overseas.
After Ireland became a tax haven, its growth rate suddenly rocketed to more than 25 percent in 2015. At least a portion of what was counted, however, had been generated in the United States and should have been counted toward American growth, said Alan J. Auerbach, an economist at the University of California, Berkeley. A significant chunk of the United States trade gap has been caused by companies overstating imports from their foreign subsidiaries and underreporting exports, Mr. Auerbach said.
One analysis estimated that such accounting methods subtracted $280 billion from the tally of the nation’s output in 2012. The new tax law reworks many of those international provisions. Those changes “should somewhat temper the incentives” to book money offshore, said Fatih Guvenen, one of the authors of the analysis, “but still doesn’t eliminate them.”
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