Most observers foresee slowdown in U.S. economic growth on horizon
Last year may have been the high point as it is forecast to weaken further in 2020
WASHINGTON The U.S. economy turned in a solid performance in 2018, boosted in part by tax cuts and higher government spending. But growth slowed by year’s end, and most economists envision a weaker outlook for the coming months and probably years. The nation’s gross domestic product, the broadest gauge of economic health, expanded at a 2.6-per-cent annual rate in the October-December period, the government said Thursday. That was down from a 3.4-per-cent rate in the July-September period and a sizzling 4.2-per-cent pace from April through June. During those months, the economy benefited from tax cuts and from higher government spending, the gains from which are thought to be fading. For 2018 as a whole, GDP growth amounted to 2.9 per cent, the government said, the best showing since 2015. It was just below the three-per-cent pace the administration has said it can maintain consistently. By contrast, most economists foresee slower growth ahead. For the current January-March quarter, many analysts say they think growth could slow to a two-per-cent annual rate or less.
“I think the economy will be steadily throttling back over the next two years,” said Mark Zandi, chief economist at Moody’s Analytics.
The economy’s pace of expansion last quarter reflected a slowdown in consumer spending and the start of a 35-day partial shutdown of the government, which subtracted an estimated 0.1 percentage point from growth. That weakness was offset somewhat by a gain in business investment and less of a drag from trade.
The US$1.5-trillion tax cut that President Donald Trump pushed through Congress in late 2017 and billions of extra dollars in government spending that Congress added for military and domestic programs helped accelerate the economy last year.
In the view of most economists, though, 2018 may turn out to have been the economy’s high point for some time. Many are forecasting that growth this year will slow to around 2.2 per cent and to weaken further in 2020. Some analysts say they think the economy could even dip into recession next year as the support from the tax cuts fades and the global economy sputters.
Zandi has forecast growth of 2.5 per cent this year and just above one per cent in 2020 and estimates the chance of a recession starting in 2020 at about 50-50. The National Association for Business Economics said in a survey released this week that roughly half the economists who responded to its latest survey expect a recession to have begun by the end of 2020.
The forecasts from the Trump administration are far rosier. Its officials have projected that the administration’s policies will produce growth surpassing three per cent in coming years. Kevin Hassett, chairman of the White House Council of Economic Advisers, argued in an interview Thursday that private forecasters are relying on outdated models that don’t fully reflect the latest research. Hassett said he had forecast growth of 3.1 per cent for 2018, when measured on a fourth-quarter-to-fourth-quarter basis and said that that pace was achieved.
“It worked exactly the way I said,” Hassett said.
For 2019 as a whole, Hassett said he foresees growth improving to 3.2 per cent — well above the expectations of most economists. The economic growth, now in its 10th year, is the second-longest on record. If it lasts beyond June, it will surpass the decade-long recovery from March 1991 to March 2001. Despite its duration, the expansion has been marked by the weakest annual growth rates of any recovery in the post-Second World War period — just above two per cent.
In a separate report Thursday, the government said that applications for unemployment benefits rose by 8,000 last week to a seasonally adjusted 225,000. That is still a low level by historical standards and suggests that firms are mostly maintaining their workers in a tight job market. The unemployment rate is four per cent, near a half-century low.
The economy’s 2.6-per-cent annual growth rate last quarter, though solid, was the slowest since a 2.2-per-cent pace in the first quarter of 2018. That was followed by two strong quarters last year. Trump has often cited those results as evidence that his program of tax cuts, reductions in regulations and tougher enforcement of trade agreements was working. Thursday’s GDP report from the Commerce Department had been delayed by a month because of the government shutdown.
The report showed that consumer spending slowed to a still solid growth rate of 2.8 per cent in the fourth quarter, down from 3.5-per-cent growth in the third quarter. Business investment spending came in at a strong 6.2-per-cent annual rate, up from 2.5 per cent in the previous quarter.
The trade deficit subtracted an estimated 0.2 percentage point from the annual growth rate, though that was much less of a drag than the two percentage point cut in the third quarter. Government spending grew at a rate of 0.4 per cent. But non-defence spending fell at a rate of 5.6 per cent, a drop that partially reflected the government shutdown.