US Economic Growth Slows To 2.6 Percent In Q4

US economy slows in fourth quarter, growing at 2.6 percent rate

US economy slows in fourth quarter, growing at 2.6 percent rate

Gross domestic product probably increased at a 2.3 percent annualized rate in the fourth quarter, according to a Reuters survey of economists after expanding at a 3.4 percent pace in the July-September period.

Due to the recent partial government shutdown, this initial report for the fourth quarter replaces the release of the "advance" estimate originally scheduled for January 30 and the "second" estimate originally scheduled for February 28, the commerce department said.

The 2.6 percent GDP growth rate in the fourth quarter was the slowest since a 2.2 percent rise in the first quarter of past year.

Growth, while slower than the prior two quarters, remains above both the average pace of the expansion and what the Fed sees as the economy's long-run potential of 1.9 per cent. But the longest government shutdown in USA history is poised to dent first-quarter expansion, while slowing global growth, President Donald Trump's trade war and the fading impact of fiscal stimulus together suggest the economy will have a harder time sustaining momentum.

Economists said the economy fell short of the administration's annual growth target for 2018 despite the massive $1.5 trillion in tax cuts and the government spending spree.

The figures sent Treasuries lower and the dollar higher, and the Federal Reserve's patience on interest rates is likely to support growth in coming months.

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"While we view current economic conditions as healthy and the economic outlook as favorable, over the past few months we have seen some crosscurrents and conflicting signals", Federal Reserve Chairman Jerome Powell told the House Financial Services Committee at a hearing on Wednesday.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a still-strong 2.8 percent rate in the fourth quarter.

Government spending grew at a rate of 0.4 percent, but non-defense spending fell at a rate of 5.6 percent, a drop that partially reflected the government shutdown. United States trade representative Robert Lighthizer told lawmakers on Wednesday that Washington's issues with China were "too serious" to be resolved with promises from Beijing to buy more American goods and a threat of higher tariffs could loom over trade with China for years. On the other hand, trade had a negative impact on growth with export growth slowing and imports remaining high. It also led cautious businesses to hoard imports, causing the trade deficit to widen.

The trade shortfall subtracted 0.22 percentage point from fourth-quarter GDP growth after slicing off 2 percentage points in the July-September period.

While that offset some of the drag on GDP growth from the trade deficit, the piling up of stock is bad news for first-quarter growth. That was down from a 3.4 percent rate in the July to September period and a sizzling 4.2 percent pace from April through June.

Business investment spending came in at a strong 6.2 percent annual rate, up from 2.5 percent in the third quarter. This pattern likely continued in the fourth quarter, but at a slower pace. Residential investment, which has been a consistent area of weakness throughout the year, declined for the fourth consecutive quarter at the end of 2018. Homebuilding has been weighed down by higher mortgage rates, land and labour shortages as well as tariffs on imported lumber. Hassett said he had forecast growth of 3.1 percent for 2018, when measured on a fourth-quarter-to-fourth-quarter basis, and said that that pace was achieved.

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