A surge in the trade deficit held GDP growth to just 1.9 percent in the 4th quarter of 2016, bringing the growth rate for the full year to 1.9 percent, the same rate as 2015. The growth rate in final demand in the quarter was even worse, at 0.9 percent, as inventories accumulation added a full percentage point to growth in the quarter. The 2016 GDP growth brought the average for the eight years of the Obama administration to 1.8 percent.

A striking aspect of this report is the weak evidence of any inflationary pressures in spite of the tightening labor market in recent years. The overall GDP deflator increased at a 2.1 percent annual rate in the 4th quarter. The core personal consumption expenditure deflator targeted by the Federal Reserve Board rose at just a 1.3 percent annual rate. There is no evidence of any upward trend in this measure which remains well below the Fed's 2.0 percent target rate.