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Good Sign for Michigan’s Economy in 2018

Michigan Business Beat
February 12, 2018 1:00 PM

PNC_109112.jpgIncluding business investment in capital.

 This Michigan Business Beat features Kurt Rankin, Economist, The PNC Financial Services Group, Pittsburgh, PA. Chris Holman talks with Kurt about the nation and Michigan economy. This includes how businesses are starting to invest in themselves by buying new capital to boost productivity.

Highlights of the latest economic data provided by PNC

Growth Slowed in Fourth Quarter, But Economy Still Solid; Expansion to Become Second-Longest in April

On a year-over-year basis, growth was 2.5 percent in the fourth quarter, the best pace in more than two years.  Outside of inventories and imports most components of GDP added to growth in the fourth quarter. Consumer spending increased 3.8 percent at an annual rate in the quarter, the strongest since mid-2014. Enormous 14.2 percent increase in spending on durable goods as car sales rebounded after Hurricanes Harvey and Irma. The current expansion, which began in June of 2009, is now the third-longest in US history (103 months).

Real gross domestic product increased 2.6 percent at an annual rate in the fourth quarter of 2017, according to the advance estimate from the Bureau of Economic Analysis. The consensus estimate was for an increase of 3.0 percent. Growth slowed somewhat from 3.2 percent in the third quarter and 3.1 percent in the second quarter, but was still very solid, with good details.

On a year-over-year basis, growth was 2.5 percent in the fourth quarter, the best pace in more than two years. Averaged across the four quarters of 2017 the economy expanded 2.3 percent last year, up from 1.5 percent growth in 2016.

Outside of inventories and imports most components of GDP added to growth in the fourth quarter. Growth in final sales of domestic product, which is GDP minus inventories and measures demand for US-produced goods and services, rose 3.2 percent in the fourth quarter, the best pace since the second quarter of 2015.

Consumer spending increased 3.8 percent at an annual rate in the quarter, the strongest since mid-2014, adding 2.6 percentage points to growth. There was an enormous 14.2 percent increase in spending on durable goods as car sales rebounded after Hurricanes Harvey and Irma. There was also a solid increase in consumer spending on nondurable goods (5.2 percent) and a smaller increase in spending on services (1.8 percent).

Fixed business investment increased 6.8 percent in the fourth quarter, adding 0.8 percentage point to growth. Spending on equipment surged 11.4 percent, with spending up 4.5 percent on intellectual property products and up 1.4 percent on structures. Investment in housing jumped 11.6 percent over the quarter, adding 0.4 percent to growth, in part because of reconstruction following the hurricanes.

Inventory accumulation fell in the quarter, subtracting 0.7 percentage point from growth. This was not a surprise, as inventories were a big contributor to growth in the third quarter.

Trade was also a big drag in the fourth quarter, subtracting 1.1 percentage points from growth. Exports rose a very good 6.9 percent, thanks to the ongoing global expansion and a weaker dollar. But imports grew even more, increasing 13.9 percent in the fourth quarter, the largest quarterly increase since 2010.

Government spending rose 3.0 percent in the fourth quarter, mostly on the federal side, adding 0.5 percentage point to growth.

The U.S. economy was in good shape at the end 2017. Growth received a boost in the fourth quarter from the recoveries from the hurricanes, but the fundamentals are also very solid. With more jobs and higher wages consumers are spending, and with higher profits and stronger demand businesses are investing. The housing market continues to gradually expand as well. The drags from trade and inventories were exceptionally large in the fourth quarter, but will be smaller going forward.

The U.S. economy will continue to expand throughout 2018. In addition to the solid fundamentals, growth will get a boost from corporate income tax cuts, which will support business investment, and personal income tax cuts, which will support consumer spending. PNC is forecasting growth of 2.7 percent for all of 2018, which would be the best year since 2015.

The current expansion, which began in June of 2009, is now the third-longest in U.S. history (103 months). In a few months it will become the second-longest expansion, surpassing the one that lasted through most of the 1960s (106 months). And it has the potential to become the longest expansion ever, surpassing the 120 month expansion that lasted most of the 1990s

Listen to Full Interview Here! 

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