By Lucia Mutikani
WASHINGTON- US economic growth likely slowed in the fourth quarter as imports surged and a strike at Boeing hurt spending on aircraft, though strong domestic demand will probably keep the Federal Reserve on a shallow interest rate cut path this year.
The advance gross domestic product (GDP) report from the Commerce Department on Thursday is also expected to show consumer spending maintaining a robust pace of growth last quarter. Consumer spending is being underpinned by a resilient labor market, which is churning out solid wage gains.
GDP likely increased at a 2.6 percent annualized rate last quarter after accelerating at a 3.1 percent pace in the July-September quarter, a Reuters survey of economists showed. Estimates ranged from a 1.7 percent pace to a 3.2 percent rate.
Anticipation of tariffs and a ports strike prompted businesses to front-load imports in November and December, sharply widening the trade deficit, which economists estimated probably subtracted as much as a full percentage point from GDP.
That would stretch the trade drag on GDP to four straight quarters. Most of the imports were quickly snapped up by consumers who have also been engaged in pre-emptive buying ahead of the tariffs. That probably meant less inventory was accumulated by businesses relative to the third quarter.
Inventories were likely a drag on GDP for a second consecutive quarter. Trade and inventories are the most volatile components of GDP. They were, however, likely more than offset by brisk consumer spending growth.
Consumer spending, which accounts for more than two-thirds of the economy, is expected to have retained much of the July-September momentum, when it grew at a 3.7 percent rate. A crippling strike by factory workers at Boeing from mid-September through early November, which disrupted production and delivery of aircraft, likely dented business spending on equipment.
That would offset strong growth in outlays on intellectual property products fueled by an artificial intelligence spending boom. Strong aircraft deliveries helped to boost business spending on equipment in the second and third quarter, despite higher borrowing costs constraining manufacturing.
Economists said the focus should be on final sales to private domestic purchasers – which exclude inventories, trade and government – to judge the economy’s health.
This measure of domestic demand is forecast to have grown closer to the third quarter’s 3.4 percent pace. Inflation likely picked up last quarter.
Residential investment probably rebounded, but rising mortgage rates remain an obstacle. Growth in government outlays was likely moderate, though the outlook is cloudy amid plans by the Trump administration to slash spending.
“I look for the growth rate of real government spending to continue to narrow going forward,” said Stephen Stanley, chief US economist at Santander US Capital Markets.
“Much depends on whether the attempts by the new Trump administration to clamp down on federal spending bear fruit or are stymied by Congress and/or the courts.”