The Economy

U.S. Economy Posts Smallest Annual Gain Since 2016

“Certainly, the economy isn’t firing on all cylinders, but it also doesn’t appear to be at risk of stalling out either.”
Matthew HellerJanuary 30, 2020

The U.S. economy delivered another quarter of modest growth, getting a boost from a temporary drop in imports as business investment continued to decline.

The Commerce Department reported Thursday that gross domestic product rose at a 2.1% rate in the fourth quarter, matching the third quarter and economists’ expectations.

For the full year, growth slowed to 2.3% — the smallest gain since 2016 — from 2.9% in 2018 and 2.4% in 2017, the first year of Donald Trump’s presidency. The White House had projected that the stimulus from its 2017 tax cuts would lead to 3% growth.

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The 2.3% expansion in 2019 suggests the cuts “had provided the economy only a temporary boost” and “undercuts the argument by Trump and his fellow Republicans that strong growth would pay for the tax cuts, which are expected to help push the federal budget deficit to $1.02 trillion this year,” Reuters said.

Most economists predict the U.S. will grow less than 2% in 2020.

“The bottom line is that the economy appears to have successfully sidestepped a more pronounced slowdown that sent ripples of fear through the market last year,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Certainly, the economy isn’t firing on all cylinders, but it also doesn’t appear to be at risk of stalling out either.”

Consumer spending, the engine of the recovery from the Great Recession, rose at a 1.8% pace in the fourth quarter, compared to gains of 3.2% and 4.6% in the spring and summer, while business investment fell at a 1.5% rate — the third straight quarterly decline and the longest such stretch since 2009.

“With confidence among chief executive officers remaining low in the fourth quarter after dropping to a 10-year low in the prior quarter, a rebound is unlikely soon,” Reuters said.

Imports declined 8.7%, reflecting an increase in U.S. tariffs on Chinese goods last September. “The economy is in a good place only because the trade war made imports so expensive that American businesses and consumers cut back their purchases,” said Chris Rupkey, chief economist at MUFG.