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What to look at in Thursday's G.D.P. Report



After a monthlong delay due to the government's closure the Ministry of Commerce will release its preliminary estimate for the fourth quarter's economic growth at 8:30 on Thursday. Here's what to look for.

The US economy is slow. The question now is how much – and how far this decline will go.

Forecasts investigated by Bloomberg estimate that the gross domestic product – the broadest target of goods and services produced in the United States ̵

1; grew to a 2.2 percent annual interest rate over the past three months last year. It would mark a significant decline from mid-year, when a sugar-high tax-shot card pushed growth over 4 percent.

This year seems to be of even worse start. Many economists expect growth to fall below 2 percent in the first quarter, partly due to the partial government closure, which began in December and expanded throughout most of January.

Economists annually calculate G.D.P. growth in two slightly different ways. A method used by the congressional budget office, often quoted in the media, is based on the average size of the economy over a whole year. The second approach, preferred by the Federal Reserve and most Wall Street forecasters, focuses only on the fourth quarter compared to the same period the year before. (The Commerce Department reports both numbers.)

During the first method, Mr. Trump almost clearly dropped a little of his 3 percent goal. But under the second method, the economy will hit the target as long as Thursday's report meets the economists' expectations. Don't be surprised if Democrats and Republicans issue dueling press releases, each marking the character who earns them best.

Whether the growth hit 3 percent can be of political significance, but it makes little difference financially. The difference between 2.9 per cent and 3 per cent growth is negligible over the course of a year, and in any case, the Ministry of Commerce will reassess its fourth quarter estimate in March.

And although the economy beats Mr. Trump's goal in 2018, it's unlikely to repeat this year. The Fed expects growth to slow to 2.3 percent by 2019, and many economists are even more pessimistic.

Clouds have gathered over the economy for a while. The housing market weakened sharply in 2018, when higher interest rates and falling affordability weighted building and sales. Corporate investment weakened as the year developed. And the retail trade fell unexpectedly in December, a sign that consumers – long the basis for recovery – are beginning to retreat.

Economists point to several factors to explain the slowdown. Rising interest rates made it more expensive to buy homes, cars and other major ticket items. The tax cuts that Mr. Trump entered at the end of 2017 helped to pump up expenses early in 2018, but these effects have begun to fade. Trade conflicts resulted in higher costs and greater uncertainty for many manufacturers, which made them unwilling to invest.

The deviation probably came too late to make a big difference in the fourth quarter, but there may be considerable growth in growth early in the year. Macroeconomic advisers, a prospecting firm, estimate that growth has fallen to a 1.2 percent annual interest rate in the current quarter.

Growth that weak would leave the US with little buffer against an unexpected round of bad news – an escalation in trade war with China, for example, or another round of fiscal gambling around the debt ceiling. An increasing proportion of economists expect a recession in 2020 if not before.

"The economy is already slowed down and there are many reasons why it can slow down even more and it just makes you vulnerable," said Alexander of Nomura. "It would take less shock to push you over the edge" into a recession.

It can't even take a shock at all. If business and consumers get nervous about the economy, it can trigger a vicious cycle of reduced spending and job reductions, Lindsey Piegza chief economist for Stifel Fixed Income.

"The recession is almost going to infect us," she said. "This time it's not a bubble burst. It gets the air slowly out of the balloon."

Not everyone is so pessimistic. Most economists believe that the closure caused little long-term damage to the economy. Consumer confidence came back in February when federal workers returned to work and the stock market jumped back from the December decline. Job growth has never suffered.

There are other reasons to believe that the economy could prove elastic. Trade tensions with China seem to have eased somewhat in recent weeks. The Federal Reserve has relied on plans to raise interest rates. And the combination of low unemployment, rising wages, and low oil prices should help drive consumer spending.

"All the basics are there for solid consumer recovery," Michael Pearce for capital economy. [19659031]
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