Today I want to talk about what may be the most important three-letter acronym when it comes to the U.S. economic recovery: GDP, which stands for Gross Domestic Product.
GDP is the broadest measure of a nation’s economic activity—adding up the total value of all goods and services produced in the U.S. This influential status update on the U.S. economy takes into account net exports, government spending, consumption, investment and inventory. Of course, out of these, the most important component is consumption, which accounts for about two-fourths of GDP.
The latest report is the second estimate for fourth-quarter GDP—which measures the U.S. economy’s progress over the fourth quarter. Because this is such an important report, the Commerce Department officially revises each quarter’s GDP estimates a total of four times: three times during the quarter (advance, preliminary and final), as well as a final time once a year in July when the annual benchmark revisions are announced.
And what had the newswires buzzing this morning is that the U.S. economy grew at an annual rate of 1.9% in the fourth quarter. This was below the previous estimate of 2.1% annual growth, and well below the 3.5% growth logged in the third quarter. All told, the U.S. economy grew just 1.6% in 2016, the slowest growth since 2011.
The good news is that consumer spending was stronger than previously estimated, rising 3.0% compared with the original estimate of 2.5%. Meanwhile, imports surged 8.5%, compared with the initial estimate of 8.3%. This, coupled with decling exports, dragged down overall GDP growth.
So, as was expected, the economy wasn’t able to keep up its blistering pace from the third quarter. This will likely influence the Fed as it weighs whether or not to raise key interest rates at its next meeting in mid-March. I’ll make sure to update you on the latest Fed news as it breaks. In the meantime, I’ll continue to brief you on the latest economic news through this daily blog.