What's going on?

After a very strong third quarter, growth of the US economy slowed in the fourth quarter of 2016, according to data released on Friday.

What does this mean?

Data on the economy can be �noisy.� For example, a surge in soybean exports gave the US economy a notable boost in the third quarter. In the fourth quarter, higher imports dampened growth (imports count against growth because America is, essentially, spending money abroad and the money is therefore leaving the economy; exports positively affect growth).

It is, however, important to pay attention to the overall picture that the data is painting: in 2016, the economy continued to grow at about the same rate it has since the 2008 financial crisis �� which is a low rate, by historical standards.

Why should I care?

For the markets: The mood is improving � but it must translate into action.

According to other data released on Friday, American consumers are more confident in the economy than they have been in over a decade. This gels with other confidence indicators, including of small businesses. The hope is that a positive attitude leads to action, e.g. businesses deciding to expand and people spending more money (which would typically benefit stock prices). The good news is that early indicators for January suggest that this is happening (although it�s too soon to say for sure).


The bigger picture: America�s demographics are an economic challenge.

The baby boom generation is a huge demographic, and its eldest members are just hitting seventy years of age. As this cohort increasingly hits retirement age, it puts downward pressure on the number of people available to work, and creates a limitation for future economic growth (Japan is an example of an economy where an ageing demographic has limited economic growth). One solution to this is increased immigration.