U.S. Economic Growth revised upward

According to the Commerce Department, for its third GDP estimate for the period, Gross domestic product grew at a 2.1% annualized rate which is higher than the previous forecast of 1.9%.

For the third quarter of 2016, the U.S. economy increased by 3.5% but overall showed only 1.6% economic growth for 2016. In 2015, the U.S. economy expanded by 2.6%.

Gus Faucher, deputy chief economist at PNC financial, said, “Some of this softness is due to seasonal adjustment issues that will reverse later in the year. Consumer spending will lead growth thanks to higher incomes from more jobs and rising wages.” Faucher forecasts a 2.3% economic growth for the U.S economy this year.

This pace of economic growth has been enough to lessen unemployment, but the Trump administration has been struggling with its pro-growth agenda. It has given few details of its economic policies and last week suffered a defeat to repeal Obamacare. As such, there is a question as to whether his economic agenda will be realized. Also, some economists doubt whether he can achieve higher economic growth because the U.S. suffers from an aging workforce and weak productivity growth.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, said, “The primary question is whether the next few years will resemble the last several years with the growth of around 2 percent or whether better days lie ahead.” President Trump aims to have 4% or better annual GDP growth for the U.S. economy

The forecast GDP of the Atlanta Federal Reserve for the first quarter is 1 percent, and this tends to be lower compared to other quarters because of calculation issues which the government is currently resolving.

The good news is that the labor market is near full employment and so growth figure will likely understate the health of the U.S. economy.

Two-thirds of U.S. economic activity is driven by consumer spending. In the fourth quarter of 2016, it has been revised upward to 3.5 percent compared to the previous estimate of 3 percent. This growth in consumer spending is backed by a tighter labor market. A recent Labor Department report said that claims for state unemployment benefits fell by 3,000 for the week ended March 25. This means that more people are getting jobs and spending.

Domestic demand for the 4th quarter grew strongly at 3.4%.

Also, the Commerce Department reported that profit figures increased 0.5% for the fourth quarter, up from almost a 6% gain in the previous quarter. Profit figures take into account depreciation and inventory values.

Baird said, “The post-election surge in business sentiment is broadly expected to support stronger investment- a key support to stronger growth that has been largely elusive thus far in the current expansion.”

Some of the key adjustments to the 4th quarter GDP include imports revised upwardly from 8.5% to 9%, exports declining to 4.5% instead of 4%, and government spending increase was reduced to 0.2% from 0.4%. Also, increase in inventories was revised upwardly from $46.2 billion to $49.6 billion.

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