U.S. Economy excelling 3 percent growth remains out of reach

According to the report issued this Friday, by the Commerce Department, the world’s largest economy is doing fine with an annualized gain of 2.6 percent in gross domestic product. However, Trump’s goal of reaching 3 percent remains unattained. The fourth-quarter GDP growth was forecasted to be in a range starting from 2.2 percent to 3.8 percent, according to the Bloomberg survey.

Consumer spending which makes up the biggest part of the economy, reportedly rose to new heights at 3.8 percent by adding a 2.58 percentage points to growth. Business equipment investment expanded with a 11.4 percent annualized rate which added 0.62 percentage point to fourth-quarter growth.Housing took a huge upward leap too. The more-volatile categories of trade and inventories jointly managed to cut back 1.8 percentage off the growth.

The results show strong improvement in various sectors of the economy including the success of the president’s move to cut taxes. The pace of household purchases which account for about 70 percent of the economy is unlikely to repeat the recent performance with a not so high wage gain and increasing debt loads.

The report also shows the effect of a widening trade gap on GDP. Even with a high global growth and a weaker dollar, exports failed to keep up with imports which almost doubled, boosted by domestic demand. Increases in Federal Reserve interest-rate could also limit expansion.

U.S. Economy excelling 3 percent growth remains out of reach
Image Source: USA TODAY

“The details are much better than the headline,” said Tom Simons, senior economist at Jefferies LLC. “The more fundamental elements of growth were quite strong in the fourth quarter. Both on the consumer and the business side, there a lot of momentum.” At the same time, “trade might be a more persistent weakness.”

Forcasts predicted the longest streak since 2005 with the third straight quarter of 3 percent-or-better growth. It is speculated that the budiness confidence that Trump’s election enforced played a role in driving more corporate investment, which – due to lower taxes – is only expected to keep rising.

“The economy continues to hum along,” said Ryan Sweet, an economist who accurately projected the 2.6 percent figure, at Moody’s Analytics Inc. in West Chester, Pennsylvania “this is far from doom and gloom. Businesses are investing aggressively and consumers continue to spend at a very strong pace. We got a bit spoiled by 3 percent-plus growth in the last couple of quarters, but that streak was eventually going to come to an end.”