The widest measure of the nation’s economy performed as first estimated in the final quarter of last year despite a jump in consumer spending, according to a new assessment released Tuesday. Meanwhile,orders for long-lasting durable goods rebounded somewhat in January.
The U.S. gross domestic product (GDP) increased at a rate of 1.9% in the final three months of 2016, according to the second of three estimates from the Commerce Department, the same rate as the reading from a month earlier. This latest reading is a little below what Wall Street analysts were expecting and compares to a rate of 3.5% in the third quarter of 2016.
According to MarketWatch, GDP was held down by the U.S. trade deficit even as “consumer spending rebounded strongly,” up 3% versus the earlier estimate of 2.5%, which it said should bode well for the overall economy in the coming months as household spending accounts for up to 70% of all economic activity. In contrast, the rise in the trade deficit cut total GDP growth in half and was also was offset by weaker government spending and business fixed investment.
“The upward revision to consumer spending indicates strong momentum in the household sector toward the end of the year, but a more modest increase in business investment is somewhat discouraging, leaving less evidence of rebalancing in domestic growth toward the end of last year,” said Josh Nye, economist at RBC Economics Research. “While the latter trend is less positive than previously estimated, we continue to expect nonresidential investment will pick up modestly this year alongside improving business sentiment, supplementing another strong contribution to growth from consumer spending.”
Durable Good Orders Improve, Capital Spending Falls
This follows a separate report from the Commerce Department on Monday showing new orders for durable goods in January increased 1.8% from the month before following two consecutive monthly declines.
The hike was driven by a 6% jump in new transportation orders and was slightly better than a consensus estimate from analysts. Excluding transportation new orders in January fell 0.2% from December but overall orders increased 1.4% from a year earlier.
Shipments of durable goods, didn’t do as well, falling 0.1% following two straightly monthly gains but gained 3.6% from the same time a year earlier.
Inside the report, a measure of business investment, new orders for non-military capital goods minus aircraft, slipped 0.4% in January, the first decline since September, and follows an upwardly revised 1.1% gain in December.
The report shows business investment remains tepid at best, according to Lindsey Piegza, chief economist at Stifel Fixed Income.
“At this point, a good portion of the gain, however, is buoyed by confidence in better conditions ahead, resulting from a pro-growth agenda out of Washington focused on removing the barriers to businesses and jumpstarting economic growth,” she said.
Piegza cautioned that political promises, however, will need to turn into reality to sustain and further propel this type of activity.
“We remain cautiously optimistic as there are limitations to what the president can do, but even minimal improvement from an otherwise declining trend established over the past near-decade is a large step in the right direction,” she said.