The US economy expanded last year at its slowest annual pace since a manufacturing slowdown in 2016, as consumer spending showed signs of flagging.
Gross domestic product rose at a 2.1 per cent annualised rate in the final three months of 2019, according to the first estimate from the US commerce department, released on Thursday. That matched the median forecast among economists surveyed by Refinitiv, and was steady from the 2.1 per cent pace in the third quarter.
For the full year, the economy expanded 2.3 per cent, which is down from 2.9 per cent in 2018, and well shy of the Trump administration’s goal of 3 per cent annual growth.
“In the fourth quarter, a downturn in imports, an acceleration in government spending and a smaller decrease in nonresidential investment were offset by a larger decrease in private inventory investment and a slowdown in [personal consumption expenditures],” the commerce department said on Thursday.
Consumers, long held up as the driver of US expansion, showed signs of fading. Household purchases contributed 1.2 percentage points to growth at the end of the year, down from 2.1 percentage points in the autumn. Almost all categories of consumer spending on goods slowed, including cars and furniture. Household spending on services showed more resilience, although spending on eating out slowed, in a sign of flagging confidence.
Over the full year, personal consumption grew 2.6 per cent, down from 3 per cent in 2018.
The data were revealed a day after the Federal Reserve stood pat on interest rates at its first policy meeting for 2020. Chair Jay Powell characterised the economy as “in a good place”. The central bank cut interest rates three times in 2019 but indicated last year it would probably leave its benchmark borrowing rate unchanged this year.
The Fed on Wednesday made one change in its policy statement, describing growth in household spending as “moderate” rather than “strong”, as it had previously.
“GDP growth is stable at about 2 per cent,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “We think that trend will persist all year, coronavirus permitting. If we’re right, the Fed has no need to ease further.”
The Fed spent much of 2019 worried about the knock-on effects of trade tension, and in particular a drop in business investment. Uncertain about negotiations between Washington and Beijing, some companies spent the year waiting to buy new equipment.
The decline continued through the end of the year. Corporate spending dropped 1.5 per cent in the last quarter of 2019, growing only 2.1 per cent for the full year. That is down from 6.4 per cent in 2018.
Companies’ response to the ceasefire in the Sino-US trade war “is key to the growth outlook for 2020”, said John Ryding, chief economist at RDQ Economics.
Source: Economy - ft.com
