US Economy Grew at 2.6% Rate in Fourth Quarter
January 27, 2018 by admin
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Holiday shoppers were enthusiastic, and spending on business and residential housing was up. A persistent appetite for foreign goods, however, widened the trade deficit — it reached $50.5 billion in November — and slowed G.D.P. gains. A decline in inventories provided another drag.
“We’re finally starting to see some pickup in business fixed investment,” said Joel Prakken, chief United States economist at Macroeconomic Advisers by IHS Markit. “It seems to me that businesses that have been very cautious out of fear that this expansion might peter out are now at the point where they risk losing sales if they don’t expand.”
The Commerce Department’s report on the gross domestic product 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.
That status will not prevent the figures from becoming fodder for the political debate about how much credit Mr. Trump deserves for the continuing expansion.
The nation’s $17 trillion 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 1.4 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.
Supporters have credited Mr. Trump with revving business and consumer confidence, and say tax cuts and eased regulation are fueling capital investment and job creation.
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.
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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, average yearly growth was 2.1 percent after the recession, with a high of 2.9 percent in 2015.
But in 2017, the expansion spread to at least 120 countries, according to a report released this week by the International Monetary Fund. In several, the rate outpaced that of the United States.
Several countries had higher growth rates than the United States did last year. 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.
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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.
Although the figures released by the Commerce Department on Friday look backward, the nation’s economic dashboard indicates that the United States is poised for faster growth. Proponents of the Republican tax overhaul say it will accelerate investment and spending in the year ahead. And the inventory declines that detracted from G.D.P. growth last quarter should be followed by a burst of spending.
Several analysts and economists, however, argue that it is unlikely that the United States can sustain annual growth of much more than 2 percent given a smaller, aging work force, sluggish productivity growth and ballooning deficits.
The I.M.F. also warned that the economic gains forecast for the next couple of years would not be sustainable, particularly given the growing debt that the United States and other countries are building up.
“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 that people tend to read way too much into the G.D.P. figures. In recent years, more and more experts have warned that it is increasingly difficult to measure a knowledge-based economy where services like Facebook and Google are free and innovations and improvements often lack an accurate price tag.
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Papers and presentations at the annual American Economics Association conference this month pointed out the measure’s shortcomings.
G.D.P. figures in the United States may have been artificially lowered over the last decade for another reason: 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, was 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 was 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.”
The tax-code changes could muddy attempts to measure growth next year, though. If enough companies stop disguising significant domestic profits as foreign, G.D.P. in the United States would suddenly expand — without any underlying change in output.
“Over the next couple of years, I think there will be a one-time jump in the level of G.D.P. because the profits that Apple, Google, Facebook and others attributed to an offshore tax haven affiliate will now appear in their U.S. accounts,” said Mr. Guvenen, an economics professor at the University of Minnesota.
“If it happens at a larger scale, it will give the appearance of faster G.D.P. growth,” he said, even if there is none.
Correction: January 26, 2018
An earlier version of this article misstated the year-over-year growth in the gross domestic product in 2015. It was 2.9 percent, not 2.6 percent.
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