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U.S. economy grew at weak 1.9% rate in 4th quarter

Martin Crutsinger
Associated Press

Washington — The U.S. economy grew at an anemic 1.9 percent rate in the fourth quarter, unchanged from an initial estimate, although consumers performed better than first thought.

The increase in the gross domestic product, the broadest measure of economic health, represented a significant slowdown from 3.5 percent growth recorded in the third quarter, the Commerce Department reported Tuesday.

The fourth quarter figure was unchanged from the first estimate a month ago, although some of the components were revised. The government found that consumer spending grew at a faster rate, but spending by state and local governments and businesses equipment purchases were weaker.

Growth for 2016 overall was just 1.6 percent, the poorest showing in five years. Since the recession ended in mid-2009, annual growth has averaged 2.1 percent, the worst performance for any recovery in the post-World War II period.

President Donald Trump vowed during the campaign to double economic growth to 4 percent or better. He said his economic program of tax cuts, deregulation and increased spending in such areas as the military and infrastructure would boost the economy back to growth rates not seen on a sustained basis in decades.

However, Trump’s Treasury Secretary Steven Mnuchin has cited a lower projection. He has said he believes the Trump program would achieve growth 3 percent or better and that the improvements would likely not be felt until 2018, after the Trump program had been enacted.

Even a 3 percent growth goal is viewed by many economists as overly optimistic, given the headwinds the economy faces including an aging workforce and disappointing productivity gains.

At the moment, many economists are forecasting growth for this year of between 2 percent and 2.5 percent. Some say growth could hit 3 percent in the second half of the year if elements of Trump’s economic program such as the middle-class tax cuts win approval in Congress by this summer.

Trump was expected to unveil details of his economic plans before a joint session of Congress on Tuesday night. The budget portion of that program will feature a $54 billion boost in military spending. The extra spending is intended for new aircraft, ships and fighters and will be paid for with $54 billion in cuts in domestic programs and foreign aid.

The Federal Reserve has raised interest rates by a small one-half-percentage point in two modest increases that came in December 2015 and December 2016. But Fed officials put markets on notice that rates could be boosted three times in 2017 as the labor market and inflation move closer to the Fed’s goals.

Many economists believe the Fed will wait until June to boost rates this year in order to get a better sense of how Trump’s economic initiatives are faring in Congress.