U.S. Economy Cooled as G.D.P. Grew at 2.6% Rate in Fourth Quarter

Slower, but not slow

The fourth-quarter slowdown wasn’t as bad as some forecasters expected. Consumer spending, the bedrock of the economy, rose at a 2.6 percent rate — slower than in the middle of the year, but hardly a collapse. Exports, which slumped in the third quarter, rebounded in the fourth, suggesting that the cooling global economy isn’t yet dragging down American exporters. And businesses stepped up their investment in equipment, software and research, a sign that they are still betting on the future.

“It may be that businesses are starting to see more scope for investment in RD and technology, and obviously for the long-term that would be good news,” said Joseph Song, an economist at Bank of America Merrill Lynch.

Still, Thursday’s report left little doubt that the midyear surge in growth has dissipated, just as many economists predicted at the time. Tax cuts and federal spending increases provided a temporary lift, but that was offset by higher interest rates, trade tensions and a slowing global economy. And the effects of the stimulus will fade further in 2019.

Residential investment, a proxy for housing construction, fell for the fourth straight quarter, as higher interest rates and declining affordability weighed on construction and sales. Retail sales dropped unexpectedly in December, which could be a sign that consumers are starting to pull back. And growth in the fourth quarter was driven in part by companies building up inventories, which could reverse in 2019.

“On the one hand, I was encouraged that there wasn’t as much of a slowing as I thought,” said Ben Herzon, an economist at Macroeconomic Advisers, a forecasting firm. “But on the other hand, what propped up growth in the fourth quarter was unsustainable.”

The government shutdown came too late to make much difference to the fourth quarter, but it could be a significant drag on growth early in the year. The funding lapse idled hundreds of thousands of federal workers, left hundreds of thousands more working without pay and disrupted air travel, among other effects. Consumer confidence plummeted. Macroeconomic Advisers on Thursday cut its estimate of growth in the current quarter to 1.1 percent.

Growth that weak would leave the United States with little buffer against an unexpected round of bad news — an escalation in the trade war with China, for example, or another round of fiscal gamesmanship around the debt ceiling. A rising share of economists expect a recession in 2020 if not sooner.

Article source: https://www.nytimes.com/2019/02/28/business/economy/gdp-report.html?partner=rss&emc=rss