By Jeffrey Sparshott and Ben Leubsdorf 
 

WASHINGTON--U.S. consumer spending was stronger than initially thought in the final months of 2016, though the overall economic-growth trajectory remained muted amid downward revisions for business investment and government spending.

Gross domestic product, a broad measure of the goods and services produced across the economy, expanded at an inflation- and seasonally adjusted annual rate of 1.9% in the fourth quarter, the Commerce Department said Tuesday. That was unchanged from the initially reported figure.

Economists surveyed by The Wall Street Journal had expected an upward revision to a 2.1% growth rate.

The latest figures are a marked deceleration from the third quarter's 3.5% pace, which had been the strongest reading in two years. They are, however, broadly in line with an economy that has, through ups and downs, settled at a roughly 2% growth pace since the recession ended.

The current expansion has endured for more than seven years, longer than the historical average, but its rate of growth has been the weakest since at least 1949.

Despite the low trajectory, GDP data from the end of 2016 and more recent indicators suggest the economy is on fairly solid footing as February comes to a close.

Tuesday's report showed consumer spending, the main driver of the economy, was stronger than thought. Personal consumption expenditures were revised to a growth rate of 3%, compared with an earlier estimate of 2.5%.

But business investment and spending by state and local governments both were revised lower, wiping out any gains from consumers. Nonresidential fixed investment--which measures business spending on structures, equipment and intellectual property--advanced at a 1.3% pace instead of the initially thought 2.4% rate. State and local government spending also expanded at a 1.3% pace, down from an initially estimated 2.6%.

Private inventories, a volatile category, added 0.94 percentage point to the final GDP reading. International trade subtracted 1.7 points.

Economic output rose 1.9% in the fourth quarter compared with a year earlier, close to the 2.1% rate since the recession ended in mid-2009.

There are few signs of an imminent breakout. Hiring and consumer spending appear relatively brisk so far in 2017, but the overall economy is tracking at a 2.5% growth rate in the first quarter of the year, according to the Federal Reserve Bank of Atlanta's GDPNow model.

President Donald Trump has set a goal of generating 4% annual growth by overhauling the tax code, rolling back federal regulations, investing in roads and bridges, and other measures. Such promises have boosted confidence among consumers and businesses, though details remain uncertain.

Heavy equipment manufacturer Terex Corp. is hopeful tax and regulatory reform, as well as infrastructure spending will boost demand, though perhaps no sooner than next year, CEO John Garrison told investors last week. Potential trade friction, however, could hurt business.

"I'd say there's a net positive sentiment as a result of the President Trump impact, with a whole lot of question marks that we're all trying to understand," Mr. Garrison said.

Economists have cautioned it will be difficult to significantly boost the economy's sustainable growth rate amid weak productivity gains and demographic forces holding back labor force expansion.

Tuesday's report also showed that inflation firmed slightly in the final months of the year. The price index for personal consumption expenditures advanced at a 1.9% pace in the fourth quarter. Excluding food and energy, the gauge was up a mild 1.2%.

The Commerce Department's latest report on GDP can be accessed at: https://bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com and Ben Leubsdorf at ben.leubsdorf@wsj.com.

(END) Dow Jones Newswires

February 28, 2017 08:45 ET (13:45 GMT)

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