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).