U.S. Economy Grew At 2.6% Rate in Fourth Quarter

By Josh Mitchell and Ben LeubsdorfFeaturesDow Jones Newswires

The U.S. economy grew steadily in the fourth quarter, losing a bit of momentum from the summer but mustering enough strength to extend one of its best stretches in recent years.

Gross domestic product--the value of all goods and services produced in the U.S., adjusted for inflation--rose at an annual rate of 2.6% from October through December, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal expected a 2.9% reading.

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Output grew slightly above 3% in the second and third quarters.

The latest growth--driven by solid increases in spending by American consumers and businesses--capped the economy's best year since 2014. Output grew 2.5% in the fourth quarter compared to a year earlier. It rose 1.8% in 2016 and 2% in 2015.

Last year ranks as the fourth-best calendar year of growth since the expansion began in mid-2009. Growth has averaged slightly above 2% this decade.

The big question now is how long the latest pickup can be sustained. Few economists expect the economy to sustain a 3% rate--President Donald Trump's goal--in the long term, given an aging population and meager productivity growth.

Driving the latest burst was a solid increase in spending by everyday Americans and businesses, whose spirits have soared thanks to low unemployment, modest inflation, a booming stock market and renewed growth around the globe. Summer hurricanes also likely played a role, as consumers and firms who put off purchases during the storms made them up--while also spending on repairs--in the final three months of 2017.

For now, consumers are driving the growth. Consumer spending rose at a 3.8% in the period, an increase last exceeded in late 2014. Spending on long-lasting items known as durable goods rose at the fastest rate since 2009. That likely reflects, in part, Americans buying new cars and other goods to replace items damaged in the storms.

Meanwhile, a key category of business spending also broke out. Nonresidential fixed investment--reflecting spending on commercial construction, equipment and software--climbed at a 6.8% rate. For the year, such investment rose by a similar margin, posting the best 12-month gain in three years.

One factor that subtracted from growth: an expanding trade gap. While exports continued to rise in the fourth quarter, imports rose by a greater amount, as Americans stepped up purchases of foreign goods.

Meanwhile, a measure of overall inflation rose at the fastest rate since 2011 but underlying inflation pressures remained subdued historically. The price index for personal consumption expenditures rose at a 2.8% pace in the fourth quarter, in part due to higher oil prices. Core prices--which exclude food and energy--rose at 1.9% rate.

The current expansion, which began in mid-2009, is the third-longest on record and set to become the second longest this spring. But it's also been stubbornly stuck in a modest pace, slower than the expansions in the 20th century.

Many economists expected the economy to maintain momentum this year, largely because of strong underlying growth but also due to a $1.5 trillion tax cut passed by Congress late last year.

The Commerce Department's release on GDP can be found at: http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Write to Josh Mitchell at joshua.mitchell@wsj.com and Ben Leubsdorf at ben.leubsdorf@wsj.com.

(END) Dow Jones Newswires

January 26, 2018 08:45 ET (13:45 GMT)