U.S. GDP shows steady Q4 growth, but coronavirus poses a threat
WASHINGTON The U.S. economy grew moderately in the fourth quarter, the government confirmed, and is facing a bumpy road in early 2020 amid the fast-spreading coronavirus that has left financial markets fearing a recession.
Though other data on Thursday suggested some stabilizing in business investment in January and the labour market remained solid, that failed to calm jittery investors.
Gross domestic product increased at a 2.1-per-cent annualized rate, supported by a smaller import bill, the Commerce Department said in its second estimate of fourth-quarter GDP. That was unrevised from last month’s advance estimate and matched the growth pace logged in the July-september quarter.
The economy grew by an unrevised 2.3 per cent in 2019, the slowest annual growth in three years and missing the White House’s three-per-cent growth target for a second straight year.
Financial markets see the coronavirus epidemic as the catalyst that could break the longest economic expansion on record, now in its 11th year.
The coronavirus has killed more than 2,000 people and infected at least 80,000 people, most of them in China.
Money markets have boosted their bets on the prospect of more Federal Reserve interest rate cuts. The U.S. central bank cut rates three times last year. The coronavirus outbreak will challenge the Fed’s view to keeping monetary policy on hold at least through 2020.
Though there is so far no real evidence that the coronavirus epidemic is affecting the U.S. economy, economists expect the struggling manufacturing sector to take a hit through supply chain disruptions and exports.
Apple has already warned investors it was unlikely to meet revenue targets for the first quarter and that global iphone supplies would be limited as manufacturing sites in China were not ramping up production as quickly as expected.
Pain for the services sector could come via the travel and tourism industry. The stock market sell-off, if it persists, could erode consumer confidence and hurt consumer spending, which is already slowing. Economists also worry that corporate profits could come under pressure and undercut the labour market, the economy’s main pillar of support.
Despite the unrevised reading to last quarter’s GDP growth, which was in line with economists’ expectations, consumer spending slowed more than previously reported. There were also downgrades to business investment and government spending, offsetting upward revisions to investment in homebuilding and inventory accumulation.
Excluding trade, inventories and government spending, the economy grew at a 1.3-per-cent rate in the fourth quarter, the slowest in four years.
This measure of domestic demand was previously reported to have risen at a 1.4-per-cent pace in the fourth quarter.
Business investment fell at a steeper 2.3-per-cent rate in the fourth quarter, instead of the previously reported 1.5-per-cent pace.
It was the third straight quarterly decline and the longest such stretch since 2009. There were downward revisions last quarter to spending on equipment, mostly light trucks.
Investment in intellectual property products like software was also downgraded, eclipsing upgrades to spending on nonresidential structures such as mining exploration, shafts and wells. Business investment could, however, be stabilizing.
A second report from the Commerce Department on Thursday showed orders for non-defence capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.1 per cent last month, the largest gain since January 2019.
But these tentative signs that the business investment downturn could be drawing to an end could prove temporary.
“At the beginning of 2020 the outlook for manufacturing was for a modest rebound from the softness that characterized 2019,” said Andrew Hollenhorst, an economist at Citigroup in New York.
“However, the economic impacts of the virus may disrupt the nascent recovery.”