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Q4 2017 GDP Growth: Still The Strongest In Five Years

The U.S. economy is still chugging along at a healthy rate.

Granted, 2.6% GDP growth was less than the expected 3% and lower than previous reports of 3.1% and 3.2%.  But it was still the strongest fourth quarter we’ve seen in five years.  In addition, that’s up significantly from the 1.9% GDP growth for the fourth quarter of 2016.

The report shows "the U.S. economy had plenty of momentum even before the tax cuts take effect this year," economist Michael Pearce of Capital Economics said, as quoted by Fox Business, referring to a $1.5 trillion tax cut passed by Congress late last year. While warning, "not to get carried away," he added: "It seems like nothing can go wrong for the U.S. economy in 2018."

We also have to consider that the economy grew 2.3% for full-year 2017 – a respectable acceleration from the 1.5% growth we saw in 2016.

Unfortunately, trade did create a drag on recently quarterly growth.  While exports were up 6.9%, imports were up 13.9% -- the highest read since 2010.

Imports soared because companies were not able to produce enough products to meet demand last quarter. Had it not been for this drag, U.S. GDP would have been well above 3%, according to analysts.

Consumer spending also increased at a rate of 3.8% in the fourth quarter of 2017.

That was the fastest rate in three years.  At the same time, strong consumer spending also limited the accumulation of inventories, which removed 0.67 percentage points from GDP, according to Reuters.

Business spending was healthy, too.

In fact, non-residential investments, which reflect spending on commercial construction, equipment and software, jumped 6.8%.  Investment in new housing increased 11.6%, business spending on equipment surged 11.4% and spending on structures moved up 1.4%, according to Commerce Department.

"Just about everything you could hope for showed up in this report," said Dan North, the chief economist at Euler Hermes North America. "Despite what is clearly a disappointment on the headline, once you look past it, it’s really a great report. What’s more important is the consumer roaring ahead and this is what’s going to drive the economy forward."

Next year, analysts believe we’ll see U.S. GDP growth of 2.8% thanks to tax reform, according to the International Monetary Fund.  In fact, the group believes the reduction in the corporate tax rate from 35% to 21% should help stimulate business investment and growth.

Analysts at Wells Fargo believe we’ll see GDP growth of 3% for the year.

“The backdrop at the start of 2018 is encouraging and supports an accelerated pace of U.S. GDP growth,” said Sam Bullard, senior economist at Wells Fargo, as quoted by The Washington Post.

From here, it’ll be interesting to see what happens as the economy improves.

The Cheap Investor will be sure to stay on top of this story and investment opportunities.