The Economy

U.S. Economic Growth Slows to 2.6% in Q4

“I think this is a slowing. I don’t think this is ‘we’re falling into an abyss," one economist says.
Matthew HellerFebruary 28, 2019
U.S. Economic Growth Slows to 2.6% in Q4

U.S. economic growth slowed significantly in the fourth quarter of 2018 but the economy remains on track for its longest-ever expansion, reflecting healthy consumer and business spending.

In its first GDP reading for the fourth quarter, the Commerce Department reported Thursday that the economy grew at a 2.6% rate after advancing at a 3.4% pace in the July-September period and 4.2% in the second quarter.

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For the year as a whole, GDP growth was 2.9%, just missing the Trump administration’s 3% target.

But the fourth-quarter slowdown was less than economists’ expectations of 2.3% growth as consumer spending increased at a still strong 2.8% rate and business spending on equipment accelerated at a 6.7% rate after losing speed since the first quarter of 2018.

Weak retail sales in December and other economic data had raised concerns that the U.S. economy is cooling but it still grew in 2018 at the fastest rate since 2015 and in July the expansion is expected to become the longest on record.

“I think this is a slowing,” Lewis Alexander, chief U.S. economist for Nomura, told The New York Times. “I don’t think this is ‘we’re falling into an abyss.’”

The Federal Reserve expects growth to slow to 2.3% in 2019. “While the economy is slowing, perhaps to a plateau of about 2% over this year, that’s plenty of economic heat to keep jobs increasing at a strong pace, and to keep wages rising,” said Robert Frick, the corporate economist for Navy Federal Credit Union.

The economy in the fourth quarter faced such headwinds as trade tensions with China, the waning effects of the Trump tax cuts and slower government spending. The government shutdown may have knocked off 0.1 percentage point off growth, according to the Bureau of Economic Analysis.

But as Reuters reports, consumer spending “continues to be underpinned by a strong labor market, with inflation-adjusted income at the disposal of households jumping at a 4.2 percent rate in the fourth quarter compared to a 2.6 percent pace in the prior period.”

Business investment got a boost from a 13.1% increase in spending on intellectual property.