Growth reached 2.6 percent in Q4


Experiential spending is the big winner this holiday season, according to Sarah Quinlan, senior vice president of market insights at MasterCard . The experiences category, which includes travel and airlines, saw increases in year-over-year spending, according to Quinlan.

The U.S economy slowed late last year but still turned in a solid showing on healthy consumer spending and business investment.   

The nation’s gross domestic product – the value of all goods and services produced in the economy – increased at a seasonally adjusted annual rate of 2.6 percent in the October- December period, the Commerce Department said Thursday. That followed an average 3.7 percent advance the prior two quarters that amounted to the economy’s best six-month stretch since 2014. Economists expected a 2.2 percent gain in the fourth quarter.

For the year, the economy grew 2.9 percent, matching its performance since 2015, which was a post-recession high.

Federal tax cuts and spending increases juiced growth in 2018 but those effects are expected to fade later this year. That, combined with a sluggish global economy and lingering U.S. trade tensions with China, are likely to spell slower U.S. growth of 2 percent to 2.5 percent in 2019, economists say. Many analysts predict a recession by 2020.

The warier outlook has prompted the Federal Reserve to retreat from its plan to raise interest rates twice this year to head off inflation. Instead, Fed policymakers have adopted a wait-and-see approach and indicated a rate cut to stimulate growth may be just as likely as a hike.

The labor marbket is also expected to lose some steam as the 4 percent unemployment rate makes it harder for businesses to find qualified workers.

President Trump has promised at least 3 percent growth over the longer term but most economists say that’s wishful thinking. The economy is constrained by an aging population and tepid growth in productivity, or worker output.

Consumer spending rises solidly

Consumer spending grew a sturdy 2.8 percent, down from 3.5 percent in the third quarter. The showing was dampened by a surprising 1.2 percent retail sales decline in December that some economists question and expect to be revised higher.

More broadly, Americans benefited from both the tax cuts and lower gasoline prices. Consumer confidence, which can foreshadow spending, fell late last year on a big stock sell-off, But it has rebounded strongly recently on the stock market’s rally and the resolution of the 35-day partial government shutdown.

Incomes also have been rising. Employers added an average 223,000 jobs a month last year, up from 182,000 in 2017. And by the second half of the year, annual wage growth  topped 3 percent for the first time in nine years as firms bid up to attract workers.

Business investment rebounds

Business investment increased 6.2 percent, up from 2.5 percent in the third quarter, largely because of a big jump in software and research and development. Equipment spending also rose 6.7 percent. The solid performance defied the drop in stock prices late last year that rattled business confidence, slowing global growth and President Trump’s trade standoff with China

Business stockpiling, which is volatile, added 0.13 percentage points to growth.

Government spending rises

Government spending edged up 0.4 percent after rising 2.6 percent in the second quarter. Federal spending increased 1.6 percent, bolstered by a 6.9 percent jump in defense outlays, while state and local government spending fell 0.3 percent.

The budget deal Congress passed early last year is boosting government outlays, though the effects are likely to fade by the second half of 2019.

Trade gap widens

The nation’s trade deficit widened as exports increased 1.6 percent while imports grew 2.7 percent. As a result, trade overall was a slight drag on economic growth. China has hit U.S. imports such as soybeans with tariffs in retaliation for broad U.S. tariffs on Chinese shipments. Trump recently delayed plans to increase a 10 percent tariff on $200 billion in Chinese goods to 25 percent, raising hopes for a resolution to the impasse.

Housing construction drops again

Residential investment fell for the fourth straight month, slipping 3.5 percent. While low housing supplies reflect a need for more construction, builders have faced severe worker shortages and higher material costs that have slowed projects.  

Also, existing home sales slowed noticeably late last year amid higher mortgage rates and home prices, leading many builders to pull back. Both prices and rates have moderated recently, possibly bbheralding a recovery in housing starts.b


President Donald Trump will be heading into his second meeting with North Korea’s Kim Jong Un Monday expecting “a very tremendous summit. Trump expects a signing summit on a trade deal to be held soon with China. (Feb. 25)

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