The American economy grew by 2.5% (annualized) in the fourth quarter according to the BEA’s second estimate. That was a tick lower than the first estimate, but right in line with expectations.
Headline consumer spending growth was unchanged at 3.8%, although services spending was slightly stronger (+2.1% versus 1.8%) at the expense of a downward revision to goods spending.
Business investment was revised down by a hair to 6.6% from 6.8%, owing to lower intellectual property investment (+2.4% versus 4.5%). Investment in structures (+2.5%) and equipment (+11.8%) were both revised up modestly.
Residential investment grew even faster than originally reported, rising 13% annualized (up from 11.6%). Residential structures were impacted by disruptions related to Hurricanes Harvey and Irma in the third quarter, with activity clearly rebounding in the fourth quarter.
The drag from inventories was revised up slightly, subtracting 0.7 percentage points from the headline figure.
Exports and imports were little changed, subtracting 1.1 percentage points from growth in Q4.
Key Implications
Well that was rather uneventful. Changes to GDP growth from the first to second estimate were quite minimal. A slight downward revision to growth in the fourth quarter does not change the story for the economy. Real GDP growth still ran at a healthy pace in Q4, and for the most part, momentum has carried through into 2018. Growth has been well-above the economy’s potential growth rate (around 2.0%) and is consistent with ongoing declines in the unemployment rate, which at 4.1% is already below its estimated long-run level.
The Fed already knew that the economy had healthy momentum to end 2017, so this does little to change its thinking on the outlook. We will hear from Powell again on Thursday, when he testifies before the Senate Banking Committee, but his remarks will likely mirror those from yesterday.
 and is consistent with ongoing declines in the unemployment rate, which at 4.1% is already below its estimated long-run level.){kind=link}