US economy posts slowest growth since 2011

AFP Washington, United States Jan 27, 2017, 03.33 PM(IST)

Slowdown in exports, an acceleration in imports and a downturn in federal government spending led to the slowdown, the commerce department said. Photograph:( AFP )

The US economy slowed sharply in the final three months of the year largely due to falling exports, pulling 2016 growth to its lowest since 2011, the Commerce Department reported on Friday.

The first estimate of Gross Domestic Product showed growth of 1.9 per cent in the October-December period, well below the 3.5 per cent pace of the third quarter, and short of the consensus estimate by analysts of 2.2 per cent.

For the full year, the economy expanded 1.6 per cent, a full point below the pace of 2015.

"The deceleration of real GDP in the fourth quarter reflected a downturn in exports, an acceleration in imports... and a downturn in federal government spending," the report said.

Exports fell 4.3 per cent in the latest quarter, while imports rose eight per cent. Together those two factors subtracted 1.7 points from GDP in the quarter. Federal spending fell 1.2 per cent.

But the economy was buoyed by an 11 per cent surge in spending on durable goods, like large appliances, and a 10 per cent jump in residential investment.

The tepid growth for the fourth quarter would seem to confirm the expectation that the Federal Reserve will hold off on another interest rate increase, when central bankers meet next week, after they raised the benchmark rate in December for only the second time in a decade.

However, the Fed's preferred inflation measure, the Personal Consumption Expenditures index, jumped to 2.2 per cent the final quarter of the year, from 1.5 per cent in the prior quarter, which is above the Fed's 2.0 percent target and the highest since early 2012. 

Excluding volatile food and energy prices, the so-called core PCE price index slowed to 1.3 percent from 1.7 per cent in the third quarter.

For the full year, the price index increased 1.1 per cent compared to 2015, while the core was up 1.7 per cent, the fastest since 2012.

In a separate report, the Commerce Department said new orders for durable goods fell 0.4 percent in December, which is consistent with the GDP data but likely will surprise analysts who expected a three percent increase.

However, when transportation products are excluded, new orders rose 0.5 per cent. The figure jumped 1.7 per cent when defence is removed from the data.