December 22, 2016

Real economic growth in 3Q16 was revised up 0.3 percentage point to 3.5% annualized from the second quarter. However, the on-year pace of 1.7% was down from 2.2% in the year to 3Q15 and 2.9% in the year to 3Q14.

Personal consumption remains a mainstay of the economy, posting successive on-year advances of 3.2% in 3Q14, 3.1% in 3Q15, and 2.8% over the most recent four quarters. Personal consumption has been resilient, maintaining steady and robust expansion that doesn’t seem exactly consistent with the weaker trend in wages and income. Consumption was responsible for two percentage points of the third quarter’s 3.5% pace of GDP growth.

Notwithstanding President-Elect Trumps depiction of U.S. trade being in disastrous shape, net exports has supported GDP well, accounting for 0.85 percentage points of real GDP growth last quarter. Exports rose 10.0% on quarter at an annualized rate, while imports climbed just 2.2%. Compared to the third quarter of 2015, exports went up 2.0%, three times faster than imports.

Business investment, which made no contribution to growth last quarter, was the big disappointment. Non-residential corporate spending rose just 1.4% from 2Q and fell 1.1% compared to the third quarter of 2015. Residential construction contracted at a 4.1% annualized pace in 3Q and was up just 1.5% in year-on-year terms.

The Republican Party’s full-court press against fiscal spending paid off handsomely in last month’s huge political victory. Over three successive years, government spending contracted 0.3% in the year to 3Q14, rose 1.8% in the next four quarters to 3Q15 and edged only 0.4% in the most recent four quarters. Now in control of all elements of government, the GOP is expected to loosen the purse strings. The rising dollar if sustained will depress competitiveness, but it takes time for this process to play out. Growth in 2017 relative to 2016 will hinge critically in how business spending evolves. Such could hardly do much worse than this year.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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