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Economic growth slowed quicker than estimated in Q4

Latest data released by the Commerce Department showed that GDP growth decelerated at a slightly higher pace in the fourth quarter than estimated earlier, easing concerns that the Federal Reserve might resort to aggressive rate hikes in the near term under the new chief.

The revision reflects depletion of inventories to a larger degree than previously thought and increased consumer spending that spiked imports. As per revised statistics, GDP growth slowed to 2.5% in the fourth quarter of last year from 3.2% in the preceding quarter. Initially it was estimated that the economy grew 2.6% during the three-month period, matching market expectations.

Picture Courtesy: Mediamodifier

Cumulative growth accelerated to 2.3% in the whole of 2017 from 1.5% last year, signalling that the economy is returning to its pre-crisis levels on the back of vibrant economic activity and robust domestic demand.

The primary reason behind the moderation of growth towards the later part of the year is muted domestic production that resulted in a slump in shipments and a record growth in imports.

In what could be a sign of growth losing steam further, economic indicators such as retail sales, durable goods orders and factory production indexes contracted in the beginning of 2017. Adding to the downturn, trade deficit increased in January.

The revision reflects depletion of inventories to a larger degree than previously thought and increased consumer spending that spiked imports 

The estimated growth for the first three months of 2018 is a modest 1.8%, which shows the recent trend would continue in the remainder of the current year due to higher government spending and long-term impact of the recent tax cut, before improving to the 3% target by year-end.

According to experts, once GDP growth reaches such levels, the Fed chief will be forced to hike the policy rate more aggressively. The first among the three hikes projected by the Federal Reserve for this year is expected to come in March.

Meanwhile, lessened rate-hike and inflation concerns that followed the GDP data saw major indexes opening higher on Wednesday. The DJIA gained 0.39% and the S&P 500 index rose by 0.46%. The Nasdaq Composite gained 0.56% to reach 7,371.36.

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