US economy grew 2.9% in 2018, but shows signs of slowing

The US economy kicked into high gear last year, in the wake of sweeping tax cuts, but slowed in the final months, suggesting the boom had begun to fade, according to government data released Friday.

GDP expanded by 2.9 per cent in 2018, according to the Commerce Department report, up from 2.2 per cent the year and approaching the target set by President Donald Trump.

Last year's pace matched growth in 2015, which was the highest since 2005. But in the October-December period, growth tapered down to an annual rate of 2.6 per cent, a sharp drop from 3.4 per cent in the third quarter, and 4.2 per cent in the second.

 

Even the slower fourth-quarter expansion was better than expected, as economists had predicted lackluster consumer spending over the holiday period would take a deeper cut out of growth.

The robust data could simultaneously lend support to Trump and to his critics, showing unmistakable economic gains last year, amid brisk job creation, but indicating it may have been a temporary boost purchased with skyrocketing government deficits.

The non-partisan Congressional Budget Office predicted last month the US economy would see respectable but markedly slower growth of 2.3 per cent this year as the 2017 tax cuts and 2018 fiscal stimulus wear off.

The White House however says it expects growth to continue unabated in 2019. The five-week government shutdown, most of which fell in January, likely had little impact on the GDP data, as officials estimate it took a meagre 0.02 per cent slice out of the economy.

With businesses facing a sudden windfall in tax cuts amid increased government spending, growth zoomed higher in 2018 as companies built factories and stockpiled inventories, according to the Commerce Department report that was delayed by a month due to the government shutdown.

Defense spending grew 3.4 per cent, the biggest increase in nine years.

Trump's trade war, however, took a nasty bite out of the growth in the third quarter as Washington and Beijing exchanged punishing tariffs on more than USD 360 billion in two-way trade, a dispute both sides say they are now close to resolving.

Falling international trade subtracted two percent from the overall economy in the third quarter.

And in the final three months of the year, areas that had seen a post-stimulus boost appeared to be slowing: businesses investment in factory building slowed to its lowest level in a year, and non-defense government spending contracted by 5.6 per cent, its biggest decrease in five years.

The weak housing sector, which has seen falling sales and slowing construction, also shrank 3.5 per cent, its third quarterly contraction in a row.