US GDP slows in fourth quarter and for all of 2016

The US economy slowed noticeably at the tail-end of 2016, weighed down by a negative contribution from international trade and lower federal government spending.

Gross domestic product expanded at a quarterly annualised pace of 1.9% during the fourth quarter, according to the Department of Commerce, which was less than 3.5% seen over the previous three months and below forecasts for growth of 2.1%.

On the prices front, the price index for gross domestic purchases printed at 2.0% (consensus: 2.1%), versus 1.5% in the third quarter, while the price deflator for personal consumption expenditures jumped from 1.5% to 2.2%.

At the core level, excluding prices for food and energy that is, PCE on the other hand revealed a decelerating trend in the rate of price increases, from 1.7% in the third quarter to 1.3% in the fourth.

The personal savings rate ticked lower, falling from 5.8% to 5.6%.

For all of 2016 GDP grew by 1.6%, down from the 2.6% observed in 2015.

Net trade (exports minus imports) subtracted 1.7 percentage points from the rate of GDP growth as a third quarter surge in soybean exports reversed, alongside a likely temporary worsening in the core deficit, Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Nonetheless, Shepherdson added,"we think the domestic economy had real momentum heading into early 2017, even before any fiscal stimulus from the new Congress. Don't be deceived by the softish headline."

Paul Ashworth, chief US economist at Capital Economics, was of a similar view, saying: "We would be wary of reading too much into the slowdown in GDP growth from 3.5% annualised in the third quarter to 1.9% in the fourth quarter, because the temporary spike in soybean exports boosted the former and was a drag on the latter.

"More generally, after a very weak first half of 2016, when annualised GDP growth averaged only 1.1%, there was at least an acceleration to an average of 2.7% in the second half, which is well above the economy’s potential growth rate."