Economy grew solid 2.6% in Q4

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Apple announced plans to open a new campus as part of an effort that will see Apple hire 20,000 new workers over the next five years. The location of this new facility will be announced later in the year. USA TODAY

The economy grew solidly for a third straight quarter late last year on strong consumer spending and business investment, but the performance fell short of analysts’ estimates.

The nation’s gross domestic product — the value of all goods and services produced in the U.S. — increased at a seasonally adjusted annual rate of 2.6%, following advances of 3.1% and 3.2% the previous two quarters, the Commerce Department said Friday. Economists expected 3% growth. It would have marked the first time the economy has grown by 3% or more for three straight quarters since the second half of 2004 and early 2005.

The economy expanded at a 2.3% rate for all of 2017 after a disappointing 1.5% increase the prior year. That modestly exceeds the tepid 2.2% average during the 8 ½ year-old recovery from the Great Recession of 2007-09.

Perhaps most encouraging is that the economy is showing resilience. Growth topped 3% in the third quarter despite brutal hurricanes in Texas and Florida. Rebuilding efforts in those areas were expected to bolster activity late last year.

President Trump has promised 3% annual growth under the Republican tax cuts, but that may be a tougher challenge. The tax overhaul is expected to boost growth modestly in 2018, but the economy has started off recent years meekly, a trend that many economists attribute to measurement problems. That pattern could persist in the current quarter. And some analysts expect rising interest rates to temper activity late this year.

In the fourth quarter, consumer spending increased  a healthy 3.8%, up from 2.2% in the third quarter. Consumers are benefiting from sturdy job and income growth and record stock prices, and the holiday sales season was the best in several years. The tax cuts could further stoke consumption this year.

Business investment rose 6.8%, its fourth straight solid showing. Businesses have stepped up their outlays because of a revival in oil drilling and a resurgent global economy. Equipment outlays jumped 11.4% as companies struggling to find workers amid a 4.1% unemployment rate purchased more labor-saving technology.

Residential investment, largely housing starts, surged 11.5% after two months of declines. Builders are putting up more single-family homes in response to a long-term housing shortage.

Government spending increased 3% on a robust 6% rise in defense outlays and solid increases in federal, as well as state and local spending.

But business stockpiling subtracted nearly seven-tenths of a percentage point from growth after adding to economic gains the previous quarter.

And while exports increased 6.9%, imports leaped 13.9%, partly because of the strong consumer purchases. That imbalance served as a drag on growth overall.

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European and Asian markets have offered a muted reception to the passage of U.S. tax cuts as benefits to company bottom lines were already baked into stock prices, while bonds were spooked by the blowout in government debt needed to fund the giveaways Newslook