The U.S. economy expanded at a slower-than-projected pace in the fourth quarter on drags from trade and inventories, offsetting strength in consumer spending and business investment that signals solid momentum entering 2018.

Gross domestic product rose at a 2.6 percent annualized rate after 3.2 percent in the prior period, Commerce Department data showed Friday in Washington. The median forecast in a Bloomberg survey called for 3 percent. Consumer spending, the biggest part of the economy, rose 3.8 percent, the best in more than a year. Business equipment investment grew at the fastest pace in three years.

While the report dashed expectations for the longest streak of 3 percent-or-better growth since 2005, a key measure of underlying demand delivered the strongest performance since 2014 and inflation picked up, which will help keep the Federal Reserve on track to raise interest rates in coming months.


President Donald Trump's move to cut taxes may give the economy an additional boost in 2018, though reaching his goal of sustained 3 percent GDP growth will prove challenging, in part because household purchases are projected to cool. Weak productivity and slow labor-force expansion will also pose hurdles in the longer term, and higher borrowing costs could crimp gains as well.


Fourth-quarter GDP was dragged down mainly because the trade deficit widened, as imports rose at double the pace of exports. Net exports subtracted 1.13 percentage points from GDP growth, the most in a year. A change in inventories subtracted 0.67 percentage point, the most since early 2017. A separate report on Friday showed that the nation's merchandise-trade gap widened in December to the biggest since 2008.

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