US economy slows in Q4; consumer spending remains bright spot

Economy grew 1.6% for all of 2016, its worst performance since 2011, after expanding 2.6% in 2015

US economic growth slowed in the fourth quarter as previously reported, with robust consumer spending offset by downward revisions to business and government investment.

Gross domestic product rose at a 1.9 per cent annual rate in the final three months of 2016, the Commerce Department said on Tuesday in its second estimate for the period. That matched the estimate published last month.

Output increased at a 3.5 per cent rate in the third quarter.

The economy grew 1.6 per cent for all of 2016, its worst performance since 2011, after expanding 2.6 per cent in 2015.

Economic data early in the first quarter has been mixed, with retail sales rising in January but homebuilding and business spending on capital goods easing.

The economy may get a boost from President Donald Trump's proposed stimulus package of sweeping tax cuts and infrastructure spending as well as less regulations.

Trump, who pledged during last year's election campaign to deliver four per cent annual GDP growth, has promised a "phenomenal" tax plan that the White House said would include tax cuts for businesses and individuals.

Details on the proposal remain vague, though Treasury Secretary Steven Mnuchin said on Sunday that Trump would use a policy speech to Congress on Tuesday night to preview some aspects of his tax reform plans.

Economists polled by Reuters had expected fourth-quarter GDP would be revised up to a 2.1 per cent rate.

US Treasury prices rose after the data, while the dollar dipped against a basket of currencies. US stock index futures were largely unchanged.

CONSUMER SPENDING JUMPS

Consumer spending, which accounts for more than two-thirds of US economic activity, was revised sharply higher to a 3.0 per cent rate of growth in the fourth quarter. It was previously reported to have risen at a 2.5 per cent rate.

That meant private domestic demand increased at a three per cent rate, faster than the 2.8 per cent pace reported last month.

Some of the rise in demand was met with imports, which increased at a 8.5 per cent rate rather than the 8.3 per cent pace reported last month. Exports declined, leaving a trade deficit that subtracted 1.70 percentage point from GDP growth as previously reported.

There was a small downward revision to inventory investment. Businesses accumulated inventories at a rate of $46.2 billion in the last quarter, instead of the previously reported $48.7 billion. Inventory investment added 0.94 percentage points to GDP growth, down from the 1.0 percentage point estimated last month.

Business investment was revised lower to reflect a more modest pace of spending on equipment, which increased at a 1.9 per cent rate instead of the previously estimated 3.1 per cent pace. That was still the first increase in over a year and reflected a surge in gas and oil well drilling in line with rising crude oil prices.

Spending on mining exploration, wells and shafts increased at a 23.6 per cent rate instead of the previously reported 24.3 per cent pace. It declined at a 30.0 per cent pace in the third quarter.

Investment in nonresidential structures was revised to show it falling at a less steep 4.5 percent pace in the fourth quarter. It was previously reported to have declined at a five per cent rate. Overall, business investment contributed 0.17 percentage point to GDP growth, less than the 0.30 percentage reported last month.

Spending on residential construction increased at a 9.6 per cent rate, which was downwardly revised from the 10.2 per cent pace reported last month. The rebound followed two straight quarterly declines.

Government spending increased at a 0.4 per cent rate in the fourth quarter, rather than the previously reported 1.2 per cent pace of growth. As a result, government investment made no contribution to growth. It was previously reported to have contributed 0.21 percentage point.