US GDP grows over-forecast 2.6% as business economy increases

The US economy was cooled by less than expected last year, as business investment was picked up, suggesting that growth could be stronger for a long time as the Federal Reserve is taking a patient approach to interest rates.


The 2.6% annual interest rate gain in gross domestic product from October to December compared to 2.2% median estimate by economists surveyed by Bloomberg. It followed an advance of 3.4% in the previous three months, according to a report by the Trade Department on Thursday, which was delayed one month by the government's closure.

Consumption, which accounts for the bulk of the economy, grew 2.8%, slightly below forecasts, while foreign business investments increased to a 6.2% gain on equipment, software and research expenses. Government expenditure delayed, trading was a minor drag and inventories gave GDP a slight boost.

The report shows how Republican-supported tax cuts may have continued to contribute to growth and help bring the full-year rate to 3.1[ads1]%, just above President Donald Trump's 3% target. While the expansion is ready to become the country's longest record by mid-year among a continued healthy consumer, supportive Fed and robust labor market, the pace could cool down during the war, slowing global growth and the staggering impact of fiscal stimulus.

A separate report on Thursday from the Ministry of Labor showed that applications for unemployment services increased by more than expected last week to 225,000, still close to five decades low. The week included the president's day vacation, and the claims tend to be more volatile around such events.

Potential Growth in US GDP

Growth, while slower than the previous two quarters, remains above both the average rate of expansion and what the Fed sees as the long-term potential of the economy of 1.9%. Government bonds and surveys show that the chances of a recession have increased in recent months, while still unlikely for 2019.

Apart from the volatile trading and commodity components of GDP, final sales to domestic buyers increased by 2.6% 2.9%. Economists monitor this measure for a better sense of underlying demand.

The increase in consumer spending followed the third quarter's 3.5% gain. It contributed 1.92 percentage points to growth. Drivers included healthcare, financial services and insurance, and other non-precious goods and services, while food and accommodation expenses fell.

The GDP data can strengthen the analyst criticism of the government's latest report on retail in December. It showed the biggest fall in nine years, even as other figures – especially reports from the country's largest dealers – indicated that consumers continued to open their wallets in the quarter.

Thursday's report showed that the downturn in the corporate economy in the third quarter may have been temporary. Foreign fixed investment contributed 0.82 percentage points to growth after 0.35 points in the third quarter.

Within this category, expenditure on structures fell by 4.2%, the largest decline in the year, a decline that may partly reflect falling oil prices. Investment in the food industry increased by 6.7%, and expenditure on intangible assets rose 13.1%.

Boligge on US GDP

The homes were a weak point last year and sent the fourth consecutive draw on GDP growth with a contraction of 3.5%. Housing sales tumbled at the end of 2018 among elevated mortgage rates and price increases that continued to exceed wages, although there are signs of early 2019 demand due to a decline in borrowing costs.

Net exports subtracted 0.22 percentage points from GDP growth in the quarter following a 1.99-point reduction in the previous period. The dragons reflected a 2.7% increase in imports, which constituted a 1.6% increase in exports, with the tariff war as a buffet both sets of flows.

Inventories increased 0.13 percentage points to the expansion rate.

Meanwhile, inflation remained subdued, adding little urgency to the Fed to consider resuming interest rates. The GDP report showed that the Fed preferred price index increased by 1.5% annual pace last year, below the central bank's 2% target. Without food and energy, the index rose 1.7%.

More Details Fourth Quarter US GDP

Government spending increased by 0.4%, reflecting a 6.9% attempt in defense spending – most nine years – and a 5.6% decline in non-defense spending, the largest decline since 2013.

The rate of savings increased to 6.7% from 6.4% in the quarter, as inflation-adjusted disposable income increased by 4.2%, mostly in three quarters.

The partial closure, which began on December 22, led to lowering fourth-quarter GDP growth by about 0.1 percentage point, considering the consequences of reductions in services provided by the federal government, even though the Department of Commerce warned that The full effect of the closure on the economy cannot be quantified.

The first GDP estimate was originally scheduled for release on January 30. Thursday's report includes both advance and other estimates. The revised fourth-quarter GDP estimate is due on March 28, data that will also include the company's earnings for the period.


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