US economy loses steam as imports surge

Image source, Reuters

US economic growth slowed unexpectedly to an annualised rate of 2.6% in the last three months of 2017, the Commerce Department said on Friday.

Economists had expected the rate to be 3% - the same as the three months to September.

A surge in imports was blamed for the slowdown, which meant growth for 2017 came in at 2.3%.

That was better than the 1.5% posted in 2016, but well short of President Donald Trump's 3% target.

Imports surged by 13.9% in the quarter - the fastest pace since the third quarter of 2010 - offsetting a rise in exports.

As a result, trade sliced off 1.1 percentage points from GDP growth in the three months.

Despite the slowdown, economists expect the US economy to expand by 3% this year, spurred by the weak dollar, rising oil prices and a strong global economy.

Analysis: Andrew Walker, BBC economics correspondent

The figure is below the previous quarter and less than what was expected, but not by much.

If rather than using the annualised figures that the US Bureau of Economic Affairs always publishes, we consider the simple quarterly growth numbers, the slowdown is just 0.2% and the miss compared to expectations only half of that.

One of the reasons for the slightly lower figure is firms reducing their inventories - selling off goods they have already produced. They cannot do that forever.

Manufacturers will have to start replenishing their stocks sooner or later. The positive in the figures was a strong surge in business investment.

The conclusion: the figures point to an economy whose underlying growth is pretty firm.

Addressing the World Economic Forum in Davos, Mr Trump hailed the strong US economic growth: "The world is witnessing the resurgence of a strong and prosperous America."

"Now is the best time to bring your money, your jobs, your businesses to America," he said, pointing to recent tax reform and curbs on red tape as good for the investment climate.

The president made another attack on "predatory" and said the US will not tolerate unfair trade.

The US dollar made up some ground against sterling and the euro after the GDP figures were released, but has fallen more than five cents against both currencies in the past three months.