In the fourth quarter of 2016, the U.S. gross domestic product rose 1.9 percent and consumer spending went up by 2.5 percent. In the previous quarter, however, the GDP rose by a substantial 3.5 percent, an impressive figure considering it was the most significant increase in two years.
Overall, the fourth-quarter growth was slight and disappointing in comparison to third-quarter growth. Perhaps optimistically, some analysts anticipated that the GDP would hover over a consistently high rate of growth. Despite high hopes, the market was generally expected to sputter following the third quarter.
The third quarter rose on account of an influx in soybean sales. The second quarter presented a GDP that rose by a mere 1.4 percent, which was topped within the third quarter when the GDP rose to 3.5 percent. Financial analysts remained baffled by the unanticipated rise in the third quarter, but attributed the growth to the increase in U.S. exports as well as soybean sales.
Analysts were discouraged by the fourth quarter’s statistics because over the first half of 2016, the average increase in GDP was a mere 1.1 percent and they hoped that the fourth quarter would adopt the same pattern as the third. Economists were made hesitant by the path the United States occupied —an economic stalemate with little to no growth.
Although the fourth quarter disappointed some experts, other economists and analysts warn that this fluctuation in GDP growth rate is normal and should be expected. However, since this quarter overlaps the transition from former President Barack Obama’s administration to President Donald Trump’s, some analysts have begun to worry about the effects his administration will have on the economy.
Ever since Trump acquired the seat as president-elect back in November, there has been a pervasive overconfidence that the economy would flourish.
After the results of the presidential election had officially been announced, the economy surged. Now the general public expects the trend to continue.
As far as Trump’s economic policies, he strongly indicated that he wanted to privatize major sectors within the United States, such as education and healthcare. Additionally, debates about the renegotiation of the North American Free Trade Agreement have been spurred within the Trump administration along with leaders of both Canada and Mexico. Other major trade deals, such as the Trans-Pacific Partnership, are also up for reevaluation. If Trump continues to take steps to privatize businesses and knock down international trade, the United States may become a singular economy in a global world.
To characterize the GDP growth of this quarter, analysts looked into business ventures. Overall spending on business equipment rose 3.1 percent, which is the first gain it has seen in five quarters. Additionally, private investment increased by an impressive 10.7 percent overall. There was also an increase in investment into intellectual property, which rose 6.4 percent this quarter. Essentially, businesses are beginning to spend money again.
An article published on Bloomberg.com said that, “The results cap growth of 1.9 percent for the full year—near the average pace of the current expansion—and reinforce the leading role of household purchases while showing that businesses are starting to spend again. The strong job market and optimism among consumers and companies for President Donald Trump’s policies are likely to keep growth humming along in 2017, though tensions over trade could temper any gains.”
It is also important to note that consumer spending was not the only factor that accounted for this quarter’s GDP—a decrease in exports over this quarter also pushed the figure.
In reference to the factors that contributed to this quarter’s statistics, Michael McKee, radio host and economics editor for Bloomberg Television, said, “The reason that this comes in is not just consumer spending but also a big decrease in exports that hurt the economy. It’s a trade and consumer spending issue rather than any kind of decline in the economy and this kind of bodes well.”
Trump met with U.K. Prime Minister Theresa May to discuss international trade and express his support for Brexit, both of which have contributed to economic imbalances. Global trade and global investment seem to be picking up, as indicated by the rising value of the dollar.
“The GDP report also showed price pressures remain limited. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.3 percent annualized pace,” the same article from Bloomberg.com read.