US economic growth in 2018 misses Trump target
Growth in 2018 was the strongest since 2015 and better than the 2.2% logged in 2017.
Lucia Mutikani - The US economy fell short of the Trump administration's 3% annual growth target in 2018 despite US$1.5 trillion in tax cuts and a government spendingblitz, and economists say growth will only slow from here.
A better-than-expected performance in the fourth quarter pushed gross domestic product up 2.9% for the year, just shy of the goal, Commerce Department data showed on Thursday.
President Donald Trump has touted the economy as one of the biggest achievements of his term and declared last July that his administration had "accomplished an economic turnaround of historic proportions." On the campaign trail, Trump boasted that he could boost annual economic growth to 4%, a goal that analysts always said was unachievable.
"We are moving back to a sustainable growth pace that we experienced during most of the Obama years," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "With the tax cut impacts largely done with, it is hard to see how growth can accelerate sharply."
Gross domestic product increased at a 2.6% annualised rate in the fourth quarter after advancing at a 3.4% pace in the July-September period. Economists polled by Reuters had forecast GDP rising at a 2.3% rate in the fourth quarter.
Growth in 2018 was the strongest since 2015 and better than the 2.2% logged in 2017. The expansion will be the longest on record in July.
Stimulus
The stronger-than-expected fourth-quarter performance, which reflected solid consumer and business spending, was despite many headwinds, including financial market volatility and the United States' trade war with China, raising optimism that an anticipated slowdown this year would not be abrupt.
The fiscal stimulus is believed to have peaked sometime in the fourth quarter. December economic data such as retail sales, exports, home-building and business spending on equipment weakened sharply.
In addition, most manufacturing measures softened in January and February, and motor vehicle demand has eased.
The labour market is also exhibiting signs of cooling, with a report from the Labor Department on Thursday showing the number of Americans receiving unemployment benefits rising to a 10-month high in the week ended February 16.
Uncertainty
"The first quarter won't be this good," said Paul Ashworth, chief economist at Capital Economics in Toronto. "As the stimulus fades and the lagged impact of past monetary tightening continues to feed through, we expect GDP growth to slow to 2.2% this year."
Slowing growth together with weakening global demand and uncertainty over Britain's departure from the European Union, support the Federal Reserve's "patient" stance towards raising interest rates further this year. Fed Chairman Jerome Powell reaffirmed the US central bank's position in his testimonies before lawmakers on Tuesday and Wednesday.
Inflation was largely muted in the fourth quarter.
The dollar trimmed losses against a basket of currencies on the GDP data and was last trading little changed. US Treasury prices fell, while stocks on Wall Street were lower following weak earnings from a handful of companies.
Consumer spending
The fourth-quarter GDP report was delayed by a 35-day partial shutdown of the government that ended on January 25, which affected the collection and processing of economic data. The Commerce Department said it could not quantify the full effects of the shutdown on fourth-quarter GDP growth.
Economists expect the longest shutdown in history will hurt growth in the first quarter. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, increased at a still strong 2.8% rate in the fourth quarter. Consumer spending grew at a robust 3.5% rate in the third quarter.
Consumption continues to be underpinned by a strong labour market, with inflation-adjusted income at the disposal of households jumping at a 4.2% rate in the fourth quarter compared to a 2.6% pace in the prior period.
A moderation in spending is, however, likely amid reports 2018 tax refunds have been smaller than in the previous years.
Business spending on equipment accelerated in the fourth quarter from the prior period, growing at a 6.7% rate, after losing speed since the first quarter of 2018. – Nampa/Reuters
A better-than-expected performance in the fourth quarter pushed gross domestic product up 2.9% for the year, just shy of the goal, Commerce Department data showed on Thursday.
President Donald Trump has touted the economy as one of the biggest achievements of his term and declared last July that his administration had "accomplished an economic turnaround of historic proportions." On the campaign trail, Trump boasted that he could boost annual economic growth to 4%, a goal that analysts always said was unachievable.
"We are moving back to a sustainable growth pace that we experienced during most of the Obama years," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "With the tax cut impacts largely done with, it is hard to see how growth can accelerate sharply."
Gross domestic product increased at a 2.6% annualised rate in the fourth quarter after advancing at a 3.4% pace in the July-September period. Economists polled by Reuters had forecast GDP rising at a 2.3% rate in the fourth quarter.
Growth in 2018 was the strongest since 2015 and better than the 2.2% logged in 2017. The expansion will be the longest on record in July.
Stimulus
The stronger-than-expected fourth-quarter performance, which reflected solid consumer and business spending, was despite many headwinds, including financial market volatility and the United States' trade war with China, raising optimism that an anticipated slowdown this year would not be abrupt.
The fiscal stimulus is believed to have peaked sometime in the fourth quarter. December economic data such as retail sales, exports, home-building and business spending on equipment weakened sharply.
In addition, most manufacturing measures softened in January and February, and motor vehicle demand has eased.
The labour market is also exhibiting signs of cooling, with a report from the Labor Department on Thursday showing the number of Americans receiving unemployment benefits rising to a 10-month high in the week ended February 16.
Uncertainty
"The first quarter won't be this good," said Paul Ashworth, chief economist at Capital Economics in Toronto. "As the stimulus fades and the lagged impact of past monetary tightening continues to feed through, we expect GDP growth to slow to 2.2% this year."
Slowing growth together with weakening global demand and uncertainty over Britain's departure from the European Union, support the Federal Reserve's "patient" stance towards raising interest rates further this year. Fed Chairman Jerome Powell reaffirmed the US central bank's position in his testimonies before lawmakers on Tuesday and Wednesday.
Inflation was largely muted in the fourth quarter.
The dollar trimmed losses against a basket of currencies on the GDP data and was last trading little changed. US Treasury prices fell, while stocks on Wall Street were lower following weak earnings from a handful of companies.
Consumer spending
The fourth-quarter GDP report was delayed by a 35-day partial shutdown of the government that ended on January 25, which affected the collection and processing of economic data. The Commerce Department said it could not quantify the full effects of the shutdown on fourth-quarter GDP growth.
Economists expect the longest shutdown in history will hurt growth in the first quarter. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, increased at a still strong 2.8% rate in the fourth quarter. Consumer spending grew at a robust 3.5% rate in the third quarter.
Consumption continues to be underpinned by a strong labour market, with inflation-adjusted income at the disposal of households jumping at a 4.2% rate in the fourth quarter compared to a 2.6% pace in the prior period.
A moderation in spending is, however, likely amid reports 2018 tax refunds have been smaller than in the previous years.
Business spending on equipment accelerated in the fourth quarter from the prior period, growing at a 6.7% rate, after losing speed since the first quarter of 2018. – Nampa/Reuters
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