U.S. economic growth likely slowed in the fourth quarter after shipments of soybeans dragged exports, but consumer spending stabilized and business investment significantly rallied, marking the economy is prone to expansion.
Gross domestic product rose 1.9 percent annual rate in its first fourth-quarter GDP forecast, according to the Commerce Department on Friday, which suggests a steep deceleration from the 3.5 percent growth pace in the third quarter.
"Trade was a big boost to growth in the third quarter, that's going to reverse," said senior economist Gus Faucher.
"Consumer spending, business investment and housing will add to growth, so we will still see a solid improvement in the fourth quarter."
Having said that, the economy only grew about 1.6 percent in 2016, marking its weakest pace since 2011. Meanwhile, cheap oil and a strong dollar weighed on the growth during the first six months of the year, weakening company profits and business investment.
Subsequently, corrections on inventory also weighed in on the growth last year, citing a 2.6 percent growth in 2015.
During the fourth quarter, exports declined at a 4.3 percent rate, giving back its 10 percent gain in the third quarter. Additionally, the fourth-quarter was the biggest drop in exports since the first quarter of 2015.
Trade dropped off 1.70 percentage points from GDP growth in the fourth quarter after posting a 0.85 percentage point gain in the prior period, marking the biggest drop since the second quarter of 2010.
Soybean exports was mostly pressured, firing up GDP growth in the third quarter after a harvest data in Argentina and Brazil went poorly.
U.S. – Mexico Tensions Under Trump
The intensifying crisis with Mexico driven by the Trump administration has vastly resounded across the country to South Texas and San Antonio, considering the culture and economy in the region is inseparably bound to cross-border travel, commerce, and trade.
The Trump administration’s plan to replace campaign rhetoric into political action responded through executive orders signed by President Donald Trump, which ordered a multi-billion border wall, including a dramatic buildup in Border Patrol forces, and restricted illegal immigration, and renegotiation of the North American Free Trade Agreement (NAFTA).
Given a great uncertainty over the details, specifically to trade policies, it is anticipated that the U.S. growth outlook are likely prone to an upside bias.
In essence, a strong economy would also mean further rate hikes from the Federal Reserve.
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