U.S. economy in 2017 grew at a pace that was short of market expectation, while resilient performance is expected with the support of the tax cuts bill passed last year.
U.S. economy grows at an annual rate of 2.6 percent in the fourth quarter of 2017, leading the whole year’s growth to reach 2.3 percent, according to data released by the Commerce Department on Friday.
The 2.3 percent growth was higher than the 1.5 percent increase in 2016, but below market expectation of 2.5 percent.
Consumer spending, which accounts for more than two thirds of the economy, remained the major growth engine for the economy. Consumption grew 2.7 percent and contributed 1.88 percentage points to the GDP growth in 2017.
With the strong domestic demand, U.S. imports grew 3.9 percent last year, an increase from the 1.3 percent growth in 2016.
U.S. exports also improved last year thanks to global recovery and a weak U.S. dollar. Exports grew 3.4 percent last year, compared to a decline of 0.3 percent in 2016. The trade gap subtracted 0.18 percentage point from the GDP growth last year.
The economic expansion which began from mid-2009 is the third-longest in American history. But it has remained at a modest pace which was slower than previous expansion cycles.
With the passage of the tax cuts bill last year, economists widely expected the economy would continue a steady growth this year.
William Dudley, president of the New York Federal Reserve Bank, recently raised his forecast for U.S. growth in 2018 by 0.5 to 0.75 percentage point to a range from 2.5 percent to 2.75 percent.
“About one-third of this upward revision reflects the firmer momentum of the economy going into 2018 and about two-thirds the stimulative impact of the tax legislation,” said Dudley.
The tax cuts bill passed last year lowered the corporate tax rate down to 21 percent and bring billions and millions of tax cuts for individuals.
However, Dudley warned that the tax cuts would further worsen the fiscal strength of the U.S. and in turn weigh on the economic growth.
According to estimates by the Joint Committee on Taxation, the tax bill will add 1 trillion U.S. dollars of budget deficit over the next 10 years.
John Williams, president of the San Francisco Federal Reserve Bank, also expected the economy this year would outperform forecast, due to modest boost from the tax cuts.
Williams told USA Today that stronger growth could force the Fed to raise interest rates more rapidly than anticipated. Fed officials last December forecasted three interest rates hikes this year.
According to San Francisco Fed economist Vasco Curdia, as monetary policy continues to normalize over the next two to three years, the growth is expected to gradually fall back to their trend growth estimate of about 1.7 percent.