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The economy grew solidly late last year as a modest gain in consumer spending and a narrower trade deficit offset persistently sluggish business investment and stockpiling.
The nation’s gross domestic product – the value of all goods and services produced in the U.S. – increased at a seasonally adjusted annual rate of 2.1% in the October-December period, matching the third quarter pace, the Commerce Department said Thursday. Economists forecast a 2.2% gain.
Consumer spending slowed after six months of brisk growth but continued to boost growth. Business investment, which has been hobbled by trade fights, feeble growth overseas and resulting weakness in manufacturing, fell for the third straight month.
For all of 2019, the economy throttled back after federal tax cuts and spending increases juiced growth the prior year but still grew a sturdy 2.3%. In 2018, growth was 2.9%, near President Trump’s target of at least 3% gains. Yet that seems to have been a high-water mark and Trump appears likely to fall short of his goal of sustaining such advances over several years.
At the same time, the economy performed better than many analysts predicted last year despite a weak global economy and Trump’s trade war with China, which slapped tariffs on $360 billion in Chinese imports.
Developments in recent months brightened the outlook and eased recession fears. The Trump administration reached a “phase 1” trade agreement with China that suspended future tariffs. Congress passed a new trade deal with Canada and Mexico. And the odds of a chaotic British exit from the European Union have declined.
New threats have emerged, however, including the coronavirus in China, U.S.-Iran tensions and Boeing’s suspension of its 737 MAX airliner production after two fatal crashes. Also, Trump’s broader trade battles with China and Europe still loom and some economists worry about growing business uncertainty as the November presidential election draws closer.
Economists surveyed by Wolters Kluwer Blue Chip Economic Indicators project 1.9% growth this year and in 2021 as job growth slows in the latter stages of the record 10 ½ year-old economic expansion.
Consumer spending rises
Consumer spending slowed more than expected, growing 1.8% in the fourth quarter, down from 4.6% and 3.2% in the prior two periods. While the trade war and recession worries damped Americans’ outlook a bit, households have continued to benefit from solid job gains averaging 176,000 a month last year, healthy wage increases, low debt as a share of income and record stock prices.
Consumption makes up about 70% of economic activity.
“Consumer spending has shown impressive resilience so far this year, and remains the linchpin to continued US economic expansion,” Wells Fargo wrote in a research note before Wednesday’s report.
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