Robust imports slow US Q4 economic growth

WASHINGTON: US economic growth unexpectedly slowed in the fourth quarter as the strongest pace of consumer spending in three years resulted in a surge in imports. Gross domestic product expanded at a 2.6 per cent annual rate in the fourth quarter, compared to 3.2 per cent in the third quarter, restrained by a widening trade deficit and only modest inventory accumulation, the Commerce Department said on Friday. President Donald Trump’s goal is for US economic growth of 3.0 per cent annually and the Republican-controlled Congress in December pushed through a $1.5 trillion package of tax cuts in the largest overhaul of the tax code in 30 years in an attempt to boost growth. The economy grew 2.3 per cent in 2017, an acceleration from the 1.5 per cent logged in 2016.
Imports, which subtract from GDP growth, increased at their fastest rate in more than seven years. Rising imports underscore the challenges that the Trump administration faces in its quest to boost annual GDP growth to 3.0 per cent. They indicate that US companies lack the capacity to meet buoyant domestic demand.
“Domestic demand is strong, really strong, and perhaps beginning to push against the capacity constraints of the economy,” said Paul Mortimer-Lee, chief market economist at BNP Paribas in New York. “And this precedes effects from tax cuts.”
A measure of domestic demand expanded at its quickest since the third quarter of 2014, highlighting the economy’s strength. Strong domestic demand is part of a synchronised global rebound that includes the euro zone and Asia.
Economists polled by Reuters had forecast the economy growing at a 3.0 per cent pace in the final three months of 2017.
They expect annual GDP growth will hit the government’s 3.0 per cent target this year, spurred in part by the tax cuts, a weak US dollar, rising oil prices and a strengthening global economy.
Growth, economists believe, will slow in 2019, with a recession likely in 2020, given low savings.
“Once the temporary boost from the tax cuts has faded, households’ disposable income gains won’t be strong enough to sustain similarly large increases in consumer spending that we have seen over the past several years,” said Harm Bandholz, chief US economist at UniCredit Research in New York.
“And with the savings rate close to a record-low, the ammunition from that side has gotten limited as well.” — Reuters