U.S. Gross Domestic Product

Another Sluggish Quarter, Year for U.S. Growth

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The U.S. economy has averaged 2.2% growth for the past four years despite $1 trillion in government stimulus through QE3.

The last full quarter of GDP under President Obama grew 1.9% capping off another sluggish year in the slowest post-recession expansion since World War II.

U.S. Gross Domestic Product (GDP), the total value of all goods and services produced, increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the advance estimate released today by the U.S. Commerce Department.  The GDP for the world's largest economy now stands at $18.86 trillion, still almost double that of China the world's next largest economy.

If the 1.9 percent fourth quarter rate holds up over the next two months of revisions based on more complete data, it would mean a 2016 annual growth rate of 1.9 percent, the second straight year of sub-two percent growth, an all-too common occurrence under the eight years of President Obama.  In fact, Barack Obama would become the first U.S. president since the Great Depression, which began in 1930, never to achieve 3% annual growth.

Household spending was the main contributor to U.S. growth in the fourth quarter increasing at a 2.5 percent clip with durable goods, such as automobiles and recreational equipment, accounting for most of the spending.  In a positive development, business investment soared 10.7 percent, the highest increase for the supply-side of the economy since the second quarter of 2014.

Slow export growth continues to hold back the U.S. economy with net exports of goods and services subtracting 1.7 percent from the final quarterly growth figure as both exports and imports experienced sharp declines.  Government spending contributed 0.21 to the final figure.

The lackluster growth rate of 1.9 percent for 2016 underscores the challenge faced by President Trump to get the U.S. economy back on track.  "Americans spoke loudly and clearly in November telling the world that President Obama's 'new normal' was unacceptable," said Rep. Pat Tiberi (R-Ohio), chairman of Congress's Joint Economic Committee, as reported in the Wall Street Journal.

The U.S. economy has endured anemic growth averages of around 2 percent in all eight years since the recession of 2009 (see chart) despite the Federal Reserve pumping $4.5 trillion in stimulus spending into the economy.  President Trump campaigned on the fact that the U.S. can achieve much stronger growth by reducing the corporate tax rate, boosting infrastructure spending, rolling back federal regulations and renogiating trade deals. 

The sharp increase in business spending could be a positive sign for future growth.  "I don't think there's any secret that the overall mood seems to be modestly better" early in 2017, said Scott Santi, the CEO of Illinois Tool Works Inc., in call with analysts this week. 

Written by John Bassford