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Q4 GDP growth revised up to 2.9% from 2.5%

Biggest gain in consumer spending in 3 years partially offsets drag from surge in imports

Washington

US economic growth slowed less than previously estimated in the fourth quarter as the biggest gain in consumer spending in three years partially offset the drag from a surge in imports.

Gross domestic product expanded at a 2.9 per cent annual rate in the final three months of 2017, instead of the previously reported 2.5 per cent, the Commerce Department said in its third GDP estimate for the period on Wednesday. That was a slight moderation from the third quarter's brisk 3.2 per cent pace.

The upward revision to the Q4 growth estimate also reflected less inventory reduction than previously reported. Economists polled by Reuters had expected that Q4 GDP growth would be revised up to a 2.7 per cent rate. The economy grew 2.3 per cent in 2017, an acceleration from the 1.5 per cent logged in 2016.

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The government also reported that after-tax corporate profits increased at a 1.7 per cent rate in Q4 after rising at a 5.7 per cent pace in Q3.

The government said while provisions of the income tax overhaul that came into effect in January had no effect on corporate profits for current production, they had impacted on net cash flow in Q4.

An alternate measure of growth, gross domestic income, rose at a 0.9 per cent rate in the October-December period. GDI expanded at a 2.4 per cent rate in Q3.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 1.9 per cent rate in Q4.

That followed a 2.8 per cent rate of increase in the prior period.

There are signs that economic activity slowed further in the first quarter, with retail sales falling in February for a third straight month. Housing data have been generally weak and the trade deficit hit a more than nine-year high in January.

Still, analysts believe the economy will hit the Trump administration's 3 per cent annual growth target this year, driven by a US$1.5 trillion income tax cut package and a planned increase in government spending.

That could keep the door open to slightly more aggressive interest rate increases from the Federal Reserve this year. The US central bank raised rates last week and forecast at least two more hikes for 2018. The Fed lifted its economic growth projections for this year and 2019.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, was revised up to a 4.0 per cent rate in Q4 from the 3.8 per cent pace reported last month. That was the quickest pace since Q4 of 2014 and followed a 2.2 per cent rate of growth in the July-September period.

Imports grew at an upwardly revised 14.1 per cent pace instead of the previously reported 14.0 per cent rate. That was the quickest pace since Q3 of 2010 and overshadowed a rise in exports driven by weakness in the US dollar.

The resulting trade deficit sliced 1.16 percentage points from GDP growth last quarter, the most in a year, after adding 0.36 percentage point in Q3.

While robust consumer spending curbed the accumulation of inventories, the slowdown in inventory investment was not as steep as previously reported.

Inventory investment rose at a rate of US$15.6 billion in Q4 instead of the previously reported US$8.0 billion pace. As a result, inventories subtracted 0.53 percentage point from GDP growth after adding 0.79 percentage point in the prior period.

Growth in business spending on equipment was revised slightly down to an 11.6 per cent rate from the 11.8 per cent pace published last month. That was still the best performance since Q3 of 2014. REUTERS