Economy

USA economy grew at solid 2.6 per cent rate in fourth quarter

USA economy grew at solid 2.6 per cent rate in fourth quarter

The U.S. economy grew 1.5 percent in 2016, 2.9 percent in 2015 and 2.6 percent in 2014. "We're going to see short-term aberrations", he said.

While the corporate income tax rate has been slashed to 21 percent from 35 percent and taxes for households have also been lowered, economists see only a modest boost to GDP growth as the fiscal stimulus is coming at a time when the economy is nearly at full employment.

The slower than expected growth rate dashed hopes that the economy could hit the longest streak of 3 percent or bettter since 2005. It rose at 3.8 percent, the quickest pace in more than a year.

This was weaker than the 3% growth rate that economists had forecast, and that the Trump administration has set as a target.

Michael Pearce, senior USA economist at Capital Economics, said that the big surge in imports that caused the trade deficit to widen reflected a pay-back from port disruptions caused by hurricanes in the third quarter. A fall in inventories also subtracted from GDP growth.

The advanced official estimate of US GDP showed the economy grew at a 2.6% pace in the fourth quarter, behind economists´ forecasts of 3%. It has grown every year since 2009, when it shrank 2.8 percent. The third quarter was inflated by hurricane distortions in the net exports and inventory categories.

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The economy grew at a 3.2 percent pace in the third quarter.

With consumer spending accelerating, inflation perked up in the fourth quarter.

Another standout was corporate demand. Government spending increased at a solid 3.0 percent, quickening from the July-September period's pedestrian 0.7 percent growth pace.

A measure of domestic demand jumped at a 4.6 percent rate, the fastest since the third quarter of 2014, underscoring the economy's strength.

While the boost from tax cuts and a strong labor market may provide support to the economy, growth may be less robust. Wage gains remain tepid even with steady hiring and the lowest unemployment rate since 2000.

First-quarter GDP has also been limited in recent years by so-called residual seasonality, or quirks in the data that the government is trying to address.