This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.
You can find the current article at its original source at https://www.nytimes.com/2019/02/28/business/economy/gdp-report.html
The article has changed 9 times. There is an RSS feed of changes available.
| Version 5 | Version 6 |
|---|---|
| U.S. Economy Cooled as G.D.P. Grew at 2.6% Rate in Fourth Quarter | U.S. Economy Cooled as G.D.P. Grew at 2.6% Rate in Fourth Quarter |
| (about 3 hours later) | |
| The American economy slowed at the end of 2018 — and there could be a further slowdown to come. | The American economy slowed at the end of 2018 — and there could be a further slowdown to come. |
| Gross domestic product — the broadest measure of goods and services produced in the United States — grew at a 2.6 percent annual rate in the final three months of last year, the Commerce Department said Thursday. That marks a significant slowdown from the middle of the year, when a sugar high fueled by tax cuts and government spending increases briefly pushed growth above 4 percent. | Gross domestic product — the broadest measure of goods and services produced in the United States — grew at a 2.6 percent annual rate in the final three months of last year, the Commerce Department said Thursday. That marks a significant slowdown from the middle of the year, when a sugar high fueled by tax cuts and government spending increases briefly pushed growth above 4 percent. |
| This year looks to be off to an even worse start. Many economists expect growth to drop below 2 percent in the first quarter, in part because of the partial government shutdown, which began in December and extended through most of January. | This year looks to be off to an even worse start. Many economists expect growth to drop below 2 percent in the first quarter, in part because of the partial government shutdown, which began in December and extended through most of January. |
| The shutdown also had another effect: It delayed the release of much government data, including the G.D.P. report itself, which came out a month later than usual. That has made it harder for forecasters and policymakers to keep tabs on the economy at what could turn out to be a pivotal moment. | The shutdown also had another effect: It delayed the release of much government data, including the G.D.P. report itself, which came out a month later than usual. That has made it harder for forecasters and policymakers to keep tabs on the economy at what could turn out to be a pivotal moment. |
| It’s important to keep the cooling economy in perspective. The fourth-quarter slowdown wasn’t as severe as many forecasters had feared, and even with the loss of momentum late in the year, 2018 as a whole was among the best years of the decade-long recovery from the Great Recession. And most economists do not expect a recession this year, putting current expansion on track to become the longest on record. | It’s important to keep the cooling economy in perspective. The fourth-quarter slowdown wasn’t as severe as many forecasters had feared, and even with the loss of momentum late in the year, 2018 as a whole was among the best years of the decade-long recovery from the Great Recession. And most economists do not expect a recession this year, putting current expansion on track to become the longest on record. |
| “I think this is a slowing,” said Lewis Alexander, chief United States economist for Nomura. “I don’t think this is ‘we’re falling into an abyss.’” | “I think this is a slowing,” said Lewis Alexander, chief United States economist for Nomura. “I don’t think this is ‘we’re falling into an abyss.’” |
| Thursday’s report did give President Trump some bragging rights — albeit with an asterisk. | Thursday’s report did give President Trump some bragging rights — albeit with an asterisk. |
| Economic output rose 3.1 percent in the fourth quarter from a year earlier. That’s a politically salient benchmark because Mr. Trump and his advisers have repeatedly promised growth of 3 percent or better, something his predecessor never achieved over a full calendar year. (Mr. Trump has at other times promised growth of 4 percent or more.) | Economic output rose 3.1 percent in the fourth quarter from a year earlier. That’s a politically salient benchmark because Mr. Trump and his advisers have repeatedly promised growth of 3 percent or better, something his predecessor never achieved over a full calendar year. (Mr. Trump has at other times promised growth of 4 percent or more.) |
| “A year of 3.1 percent growth is something many people thought was impossible as recently as 2016, so it’s a major accomplishment,” said Kevin Hassett, chairman of Mr. Trump’s Council of Economic Advisers. “And it’s an accomplishment that has disproportionately benefited low-wage and blue-collar workers.” | “A year of 3.1 percent growth is something many people thought was impossible as recently as 2016, so it’s a major accomplishment,” said Kevin Hassett, chairman of Mr. Trump’s Council of Economic Advisers. “And it’s an accomplishment that has disproportionately benefited low-wage and blue-collar workers.” |
| Still, Mr. Trump didn’t quite score a clear victory. By another commonly used method of calculating annual growth — which looks at G.D.P. over full years, not just comparing the fourth quarter of each year — the economy fell just short of that benchmark, coming in at 2.9 percent. Don’t be surprised if Democrats and Republicans issue dueling news releases, each highlighting the figure that serves them best. | Still, Mr. Trump didn’t quite score a clear victory. By another commonly used method of calculating annual growth — which looks at G.D.P. over full years, not just comparing the fourth quarter of each year — the economy fell just short of that benchmark, coming in at 2.9 percent. Don’t be surprised if Democrats and Republicans issue dueling news releases, each highlighting the figure that serves them best. |
| Whether growth hits 3 percent might matter politically, but it makes little difference economically. The difference between 2.9 percent and 3 percent growth is negligible in any one year, and, in any case, the Commerce Department will revise its fourth-quarter estimate in March. | Whether growth hits 3 percent might matter politically, but it makes little difference economically. The difference between 2.9 percent and 3 percent growth is negligible in any one year, and, in any case, the Commerce Department will revise its fourth-quarter estimate in March. |
| The White House expects the roughly 3 percent pace of growth to continue in 2019 and for years into the future. Few independent economists agree. With the effects of the tax cuts and spending increases fading, the Federal Reserve expects growth to slow to 2.3 percent in 2019, and many economists are even more pessimistic. | The White House expects the roughly 3 percent pace of growth to continue in 2019 and for years into the future. Few independent economists agree. With the effects of the tax cuts and spending increases fading, the Federal Reserve expects growth to slow to 2.3 percent in 2019, and many economists are even more pessimistic. |
| 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. | 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 R&D and technology, and obviously for the long-term that would be good news,” said Joseph Song, an economist at Bank of America Merrill Lynch. | “It may be that businesses are starting to see more scope for investment in R&D 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, uncertainty about the direction of the economy has made some businesses more cautious. George Whittier, who oversees operations for the Morey Corporation, a manufacturer outside Chicago, said business was strong in 2018 but began to slow at the end of the year. He shrugged off weakness in December as a seasonal blip. But then January was softer, and February was softer still. | |
| Morey, which makes electronic components for cars, medical devices and other uses, has been hit by Mr. Trump’s tariffs, which raised prices on imported parts from China. At first, the impact was small, but it has grown as suppliers draw down inventories and are forced to import more. | |
| “As each month has gone by, it has seemed like more and more components have been affected,” Mr. Whittier said. | |
| For now, Mr. Whittier remains optimistic that the trade tensions will be resolved and 2019 will prove to be a good year. But he is taking a wait-and-see approach when it comes to making big investments. | |
| “A couple years ago, we probably would have made the investments, betting on the business materializing,” he said. These days, he said, he is waiting to get firm orders before buying new equipment. “We’re talking about it, we kind of have it specced out, but we’re waiting.” | |
| 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. | 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.” | “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. | 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. | 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. |
| “The economy’s already slowing and there are a bunch of reasons why it could slow down even more, and that just makes you vulnerable,” said Mr. Alexander of Nomura. “It would take less of a shock to push you over the edge” into a recession. | “The economy’s already slowing and there are a bunch of reasons why it could slow down even more, and that just makes you vulnerable,” said Mr. Alexander of Nomura. “It would take less of a shock to push you over the edge” into a recession. |
| It might not even take a shock at all. If businesses and consumers get nervous about the economy, that could set in motion a vicious cycle of reduced spending and job cuts, said Lindsey Piegza, chief economist for the financial services firm Stifel. | It might not even take a shock at all. If businesses and consumers get nervous about the economy, that could set in motion a vicious cycle of reduced spending and job cuts, said Lindsey Piegza, chief economist for the financial services firm Stifel. |
| “The recession is almost going to sneak up on us,” she said. “This time around, it’s not a bubble bursting. It’s the air slowly being let out of the balloon.” | “The recession is almost going to sneak up on us,” she said. “This time around, it’s not a bubble bursting. It’s the air slowly being let out of the balloon.” |
| Not everyone is so pessimistic. Most economists believe the shutdown did little long-term damage to the economy. Consumer confidence rebounded in February as federal workers returned to work and the stock market bounced back from its December slump. Job growth never suffered. | Not everyone is so pessimistic. Most economists believe the shutdown did little long-term damage to the economy. Consumer confidence rebounded in February as federal workers returned to work and the stock market bounced back from its December slump. Job growth never suffered. |
| “The fears of the economic expansion’s demise seem to have been greatly exaggerated,” said Beth Ann Bovino, chief United States economist for Standard & Poor’s Ratings Services. She called Thursday’s report promising, and said that it suggested the economy entered 2019 on firmer footing than some economists had feared. | |
| There are other reasons to think the economy could prove resilient. Trade tensions with China seem to have eased somewhat in recent weeks. The Federal Reserve has backed off plans to raise interest rates. And the combination of low unemployment, rising wages and low oil prices should help drive consumer spending. | There are other reasons to think the economy could prove resilient. Trade tensions with China seem to have eased somewhat in recent weeks. The Federal Reserve has backed off plans to raise interest rates. And the combination of low unemployment, rising wages and low oil prices should help drive consumer spending. |
| “All the fundamentals are there for a solid consumer recovery,” said Michael Pearce of Capital Economics. | “All the fundamentals are there for a solid consumer recovery,” said Michael Pearce of Capital Economics. |