Rising US Trade Deficit Holds Down Q4 GDP

US economic growth slowed unexpectedly to an annualized rate of 2.6% in the last three months of 2017, the commerce department said on Friday. Economists had expected the rate to be 3%--the same as the three months to September.

A surge in imports was blamed for the slowdown, which meant growth for 2017 came in at 2.3%. That was better than the 1.5% posted in 2016, but well short of President Donald Trump’s 3% target, BBC reported.

Imports surged by 13.9% in the quarter—the fastest pace since the third quarter of 2010—offsetting a rise in exports. As a result, trade sliced off 1.1 percentage points from GDP growth in the three months.

A sharp rise in the trade deficit subtracted 1.13 percentage points from growth. Exports grew at 6.9% annual rate, while imports rose 13.9%. Part of the jump in imports was due to an anomalous 0.7% drop reported for the third quarter, but it is clear that the trade deficit is again on an upward course.

Consumption was by far the biggest contributor to growth, increasing at a 3.8% annual rate and accounting for 2.58 percentage points of the quarter’s growth. Durable goods, and cars in particular, accounted for the largest portion of this increase. Car sales grew at a 16.7% annual rate and added 0.4 percentage points to growth. It is likely that this was due in large part to the effect of the hurricanes, which destroyed hundreds of thousands of cars that were later replaced.