U.S. Economy Grew 1.9% in Quarter, Unchanged From Early Estimate

(Bloomberg) -- The U.S. economy grew in the fourth quarter at a 1.9 percent pace, unchanged from an initial estimate, as slower investment by businesses and state and local agencies offset stronger household purchases.

The gain in gross domestic product, the value of all goods and services produced, was smaller than the median forecast in a Bloomberg survey for a 2.1 percent annualized rate. Consumer spending, the biggest part of the economy, rose 3 percent, more than projected, Commerce Department data showed Tuesday in Washington.

The results reinforce the leading role that consumers continue to play in the current expansion, helped by a tight job market, low borrowing costs and rising confidence. Optimism that President Donald Trump will lower taxes, reduce regulation and rebuild infrastructure may also encourage businesses to step up investment this year, contributing to growth.

Economists' growth estimates ranged from 1.7 percent to 2.6 percent. The GDP release is the second of three for the quarter, with the third scheduled for late March, when more information is available. The economy expanded at a 3.5 percent pace in the third quarter.

The revision showed GDP grew 1.9 percent in the fourth quarter from a year earlier, the same as the initial estimate. That's about in line with the average 2 percent pace of the current expansion which began in mid-2009.

Trump Address

President Trump aims to double the pace of growth and may provide details in his address to Congress later Tuesday. Treasury Secretary Steven Mnuchin has said new policies will lead to expansion of 3 percent or higher, while the White House website pledges a “return to 4 percent annual economic growth.”

At the same time, Mnuchin has played down expectations that Trump will boost growth right away, saying last week that reaching 3 percent expansion could come later in 2018 as policy changes take effect.

The fourth-quarter revisions to household spending, which accounts for about 70 percent of the economy, compared with an initial estimate of 2.5 percent and the median analyst projection of 2.6 percent. Purchases added 2.05 percentage points to growth, more than the prior reading of 1.7 points.

The revision reflected greater spending on used automobiles and on health-care services, the Commerce Department said.

In a sign that households have the wherewithal to spend, the latest figures showed an upward revision to wages and salaries, which helped disposable income grow at a 2 percent pace, faster than the 1.5 percent initially reported.

Business Spending

Nonresidential fixed investment increased at a 1.3 percent annualized pace, less than initially estimated. That added 0.17 percentage point to growth, down from a previous reading of a 0.3-point addition.

Business spending on equipment rose 1.9 percent, the first increase in five quarters, though below the prior estimate of 3.1 percent. The change reflects an upward revision to aircraft exports, which subtract from the calculation of fixed investment, the Commerce Department said.

Corporate America spent at a slower pace on intellectual-property products than previously reported. That includes software, research and development, and entertainment.

Government spending contributed less to GDP than the initial estimate, as state and local outlays expanded at a 1.3 percent pace, half the previously reported rate. That reflected revised data on construction. Federal spending was unrevised at a 1.2 percent annualized decline.

The drag on growth from the trade deficit was unchanged from the previous report showing net exports subtracted 1.7 percentage points from GDP growth. Exports fell at a slightly slower pace, while imports gained a bit more than initially reported.

Final Sales

Inventory accumulation added 0.94 percentage point to GDP growth, compared with a previous estimate of 1 point.

Stripping out inventories and exports, the two most volatile components of GDP, so-called final sales to domestic purchasers grew at a 2.6 percent rate after adjusting for inflation, the fastest since the third quarter of 2015. The previous estimate was 2.5 percent. Economists look at such sales for a better sense of underlying domestic demand.

Housing was a tad less robust than initially estimated. Residential construction increased at a 9.6 percent annualized rate, compared with a previously-reported 10.2 percent. That added 0.35 percentage point to growth.

The GDP report also showed price pressures remained limited during the period. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.2 percent annualized pace, compared with a previously reported 1.3 percent.

--With assistance from Chris Middleton

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net.

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net.