Business
U.S. Economy Growth Ran Slower Than Expected in Q4
The U.S. economy grew less than expected in the fourth quarter of 2017 but inflation increased, per the updated official data released on Thursday.
The second estimate of the gross domestic product released by the Commerce Department indicates that the economy expanded at an annual inflation-adjusted rate of 2.7 percent from October through December. According to the prior estimate, the economy grew at a rate of 2.9 percent.
The significant downshift in the estimate of consumer expenditure was what caused the downward revision. The revised forecast shows that consumer spending is only expected to increase by 1.4 percent annually, down from the previous estimate of 2.1 percent.
The drop in spending may be the result of American households changing their end-of-year spending patterns. Many people now purchase holiday gifts as early as September, which is in the third quarter of the year, since holiday shopping has shifted earlier in the year.
However it appears that consumer spending is already picking up again. The labor market indicators have been exceptionally strong, with jobless claims running at historically low levels, job openings expanding to 11 million, unemployment falling to the lowest level in decades, and payrolls expanding by a scorching-hot half-million in January. Retail sales in January exceeded expectations. Following a respite in November and December, inflation picked up speed in January.
Investors and analysts have been compelled to reevaluate their forecasts for inflation and monetary policy in light of the evidence of increased economic vigor. The Fed is now likely to increase its benchmark rate by three-quarters of a point, up from the half-point anticipated at the beginning of the year, according to market indicators. Similar to that, forecasts for a recession have been moved from this year’s first half to the second.
The Commerce Department also increased its estimate of corporate investment from its prior estimate of 1.4 percent to 3.7 percent pace.
The personal consumption expenditure price index estimate, which the Federal Reserve uses to anticipate inflation and set its two percent objective, was raised from 3.2 percent to 3.7 percent. The original estimate of 3.9 percent was revised up to 4.3 percent for core prices, which do not include food and energy.
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