It's official: Economy grew a paltry 1.6% in 2016

The economy grew at a slower pace in the fourth quarter but still turned in a solid performance as consumer spending, housing and business investment offset weak exports.

The nation’s gross domestic product increased at a seasonally adjusted annual rate of 1.9% following a 3.5% expansion in the third quarter, the Commerce Department said Friday. Economists expected 2.2% growth.

For all of 2016, the economy grew 1.6%, down from 2.6% in 2015 and the modest 2.1% average throughout the 7½-year-old recovery.

The breakout third quarter marked a two-year high and came after nine months of anemic gains of about 1% that were largely a byproduct of meager business investment and stockpiling. The oil industry downturn and a weak global economy led energy companies and others to scale back orders.

But crude prices partly rebounded last year, prompting oil producers to revive shuttered wells and order more steel pipes and other materials.

Partly as a result, business investment grew a healthy 2.4% last quarter, its largest gain in more than a year. Equipment spending increased 3.1% after declining for four quarters.

And business stockpiling added a percentage point to growth, continuing an encouraging new trend as firms replenished depleted shelves. Stockpiling added to growth more modestly in the third quarter after serving as a drag for more than a year.

Yet consumer spending drove the economy again with a 2.5% increase. U.S. households are benefiting from solid job and income growth, cheap gasoline, higher home and stock prices and reduced debt.

Housing construction increased 10.2%, bouncing back strongly after falling for two consecutive quarters.

And government spending rose 1.2% as higher state and local outlays offset a decline in federal spending.

But exports fell 4.3%, partly in reaction to a third-quarter spike in U.S. soybean shipments amid a poor South American harvest. As a result, the nation's trade gap widened.

Citing the volatile exports, economist Paul Ashworth of Capital Economics wrote to clients, "We would be wary of reading too much into the slowdown" in the economy last quarter.

Economists expect growth to pick up to about 2.3% this year, partly because of President Trump’s proposals to cut taxes and ramp up infrastructure and defense spending.

This was the government’s first estimate of economic growth last quarter. It’s expected to publish two additional revised estimates over the next two months.