U.S. GDP growth revised to 2.9% in fourth quarter of 2017; slightly below 3Q expansion

The nation’s economic picture ended 2017 with slower-than-expected growth as strong consumer purchasing habits, robust housing sales and brisk year-end government spending were mostly offset by a downturn in capital investments.

In the fourth quarter of 2017, real gross domestic product (GDP) increased at an annual rate of 2.9%, according to the “third” and final estimate released Wednesday (March 28) by the Bureau of Economic Analysis (BEA). Real GDP increased at a robust 3.2% in the third quarter, BEA data shows.

Still, the revised GDP growth is four percentage points above the “second” estimate of 2.5% released by the BEA on March 1, and slightly above the Wall Street consensus forecast of 2.7% for the final quarter of 2017. Overall, the U.S. economy closed out the first year of President Donald Trump’s administration with modest annual growth of 2.3%, compared to a tepid 1.85% expansion in 2016.

In the first three quarters of 2017, the total output of goods and services grew at an annual rate of 0.7%, 3.1% and 3.2%, respectively.

According to the BEA, which is part of the U.S. Department of Commerce, the general picture of economic growth in the U.S. remains the same as consumer spending and private investment is expected to ramp up in 2018. In the fourth quarter, real gross domestic income (GDI) increased 0.9%, compared to 2.4% in the previous quarter.

Overall, current-dollar GDP increased by 5.3%, or $253.5 billion, in the fourth quarter to a level of $19.7 trillion. That compares to a similar gain of 5.3%, or $250.6 billion, in the third quarter. Profits from current production, which are not impacted by the $1.5 trillion 2017 Tax Cuts and Jobs Act, decreased $1.1 billion in the fourth quarter, in contrast to an increase of $90.2 billion in the third quarter.

Profits of domestic financial corporations decreased $14.6 billion in the fourth quarter, in contrast to an increase of $47.8 billion in the third. Profits of domestic nonfinancial corporations rose to $19.4 billion versus $10.4 billion in the previous quarter. Rest-of-the-world profits in the fourth quarter decreased $5.9 billion, compared to a robust gain of $32.0 billion in the third quarter.

For the year, current-dollar GDP increased 4.1%, or $766.1 billion, to a level of $19.4 trillion in 2017. That compares to an increase of 2.8%, or $503.8 billion, to $18.9 trillion in 2016. Profits from current production increased $91.2 billion, in contrast to a decrease of $44 billion in 2016.

Profits of domestic financial corporations increased $15.7 billion versus a decline of $2 billion a year ago. Profits of domestic nonfinancial corporations rose by $37.4 billion, compared to huge decline of $51.7 billion for the 12-month period of 2016. The rest-of-the-world component of profits jumped by $38 billion, compared to a smaller increase of $9.8 billion in 2016.

In its most recent forecast for the U.S. economy, the influential Conference Board noted that 2018 began with “a small slowdown in consumption and investment numbers” that led the independent research group to revise its first quarter GDP forecast downward from 3.3% to 2.6%. Still, the New York City-based executive board said the pullback doesn’t detract from a strong 2018 outlook.

“First quarter growth has been disappointing in recent years due to unexplained seasonal factors. The business environment for this year and next still looks bright, especially because the labor market created more than 200,000 jobs per month over the past six months.

“Consumers are happy but spent less than expected in the first quarter. Durable goods sales have softened since the end of 2017. Nevertheless, shoppers still seem ready to open their wallets later in the year, as consumer confidence remains high and pay packets are getting a bit fatter thanks to individual tax cuts,” said the board of independent senior executives.

The Atlanta GDPNow has also lowered its first quarter GDP forecast to only 1.8% on March 23 after bearish reports from the Census Bureau and National Association of Realtors on weak home sales and rising construction prices.

The Department of Commerce is expected to release its “advance” GDP estimate for the first quarter of 2018 on April 27.