PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

Fourth Quarter GDP: Economy Poised for Acceleration in 2018

By at 26 January, 2018, 2:58 pm

Small Business Insider

by Raymond J. Keating, Chief Economist

The latest topline number of GDP growth from the U.S. Bureau of Economic Analysis was a little disappointing given the strong two previous quarters and positive momentum in the economy. Our optimism now means we have higher expectations for great numbers and performance, which, in itself, is a good news story.  However, when you drill down into the fourth quarter data, the story is a good one.  The direction of policy and other key indicators have positioned the U.S. economy for stronger growth in 2018.

The U.S. Bureau of Economic Analysis reported on January 26 that real GDP growth for the fourth quarter of 2017 registered 2.6 percent – slowing down from 3.2 percent in the third quarter and 3.1 percent on the second. For all of 2017, real GDP grew by only 2.3 percent. A particularly sluggish first quarter took a toll on the overall annual rate.

Based on the historical norm, the U.S. economy grows at better than 3 percent on an annual average basis, and at better than 4 percent during periods of recovery/expansion. Since this recovery/expansion period began under President Obama, however, the economy has grown at a mere average of 2.2 percent.

Data Foreshadows Solid Growth Ahead

As noted, there’s more good news in the fourth quarter numbers than would be indicated by the topline growth number:

● Real growth in personal consumption expenditures moved up from 2.2 percent in the third quarter to 3.8 percent in the fourth.

● There was good news on the investment front. Real fixed investment grew by 7.9 percent in the fourth quarter, up from only 2.4 percent in the third. And that included real nonresidential (business) investment expanding by 6.8 percent versus 4.7 percent in the previous quarter. Also, residential investment jumped by 11.6 percent in the fourth quarter compared to declines in both the second and third quarters.

● Trade picked up. Export growth came in at 6.9 percent in the fourth quarter, up from only 2.1 percent in the third quarter and 3.5 percent in the second. As for imports, they grew by a robust 13.9 percent, versus a decline of 0.7 percent in the third quarter and growth of only 1.5 percent in the second.

Outlook for 2018

So, why did we get slower fourth quarter growth? Mainly, it seems to be about a drop in private inventories, which tend to be volatile from month to month and transient.

Looking ahead to 2018 then, a combination of positive policy measures on business taxes, further efforts to halt, rollback or reform regulations, and a likely bounce back in inventories, points to more robust economic growth in 2018. Of course, there are risks, particularly on the trade policy front and whether the Administration will move faster to open more global markets to U.S. products and services, as well as modernizing NAFTA by securing wins on strengthening intellectual property (IP) protections, allowing data flow, along with provisions that support U.S. energy growth and dominance.  As President Trump noted in his Davos speech at the World Economic Forum:

“When the United States grows, so does the world.  American prosperity has created countless jobs all around the globe, and the drive for excellence, creativity, and innovation in the U.S. has led to important discoveries that help people everywhere live more prosperous and far healthier lives.”

Trade allows all of this positive activity to happen.

The outlook for stronger growth has brightened considerably and has the potential to explode with favorable and proactive deals to open global markets for U.S. entrepreneurs and small businesses. Continuing to move the ball forward on health cost reduction and improving access to capital and broadband will further accelerate growth and fortify sustainable growth for the longer term.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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