February Business Conditions Monthly

Chart 1. The growth of real private domestic demand is stronger than real GDP growth. 
The U.S. economy made solid gains in 2016, but uncertainty poses a risk for 2017.

The U.S. economy performed solidly in 2016, according to the latest data from the Bureau of Economic Analysis. Our index of Primary Leading Indicators also remained well into expansionary territory in the latest month, suggesting a low risk of recession in the months ahead. With the Federal Reserve’s slow approach to a tightening monetary policy, the greatest risk is that we don’t know what to expect from Trump administration policies.

The advance estimate for fourth quarter 2016 real gross domestic product shows the economy grew 1.9 percent, putting the full-year increase at 1.6 percent, the slowest since 2011. But these numbers mask stronger results from the largest part of the economy, private domestic demand (consumer spending and business and residential investment). Real private domestic demand rose 2.3 percent in 2016 and has averaged 2.7 percent growth since 2010. On the other hand, government spending, changes in private inventories, and net trade have combined to reduce real GDP by 0.6 percentage points per year since 2010 (Chart 1). 

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Chart 1. The growth of real private domestic demand is stronger than real GDP growth. 

Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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