US economic growth was revised sharply lower for the final three months of 2018, down to 2.2 percent rather than the 2.6 percent originally reported, the Commerce Department reported Thursday.
While economists say the economy is in good shape, and growth is running at a solid pace, Trump and his economic team have repeatedly promised that his aggressive trade policies, deregulation and the massive tax cut at the end of 2017 would accelerate growth to three percent or above.
And with China and Europe slowing, and Britain on course for a potentially damaging Brexit, the US won’t get much help from foreign demand.
Most economists, including those at the International Monetary Fund, have cut US growth forecasts for 2019, and the Federal Reserve has pledged to keep the benchmark interest rate on hold for the foreseeable future.
Trump has lashed out at the Fed repeatedly, blaming the central bank for raising rates and throwing cold water on the expansion. In his unprecedented Twitter rants about the supposedly independent Fed, he has called it “crazy” and “out of control,” and a bigger threat to the US economy than China.
But economic data is not in his favor: business confidence, consumer spending and home construction have all slowed in recent months.
Still, economists agree with the Fed’s assessment that the US is in good shape.
“The slowdown in GDP growth… is a straightforward story about the end of the kick from tax cuts, which was never going to last long,” said Ian Shepherdson of Pantheon Macroeconomics.
And Chris Low, of FTN Financial, said growth “was weaker than originally reported, but not weak. At 2.2 percent, it was par for the course in this recovery before 2017.”
– Lower spending, investment –
But Gregory Daco of Oxford Economics notes the US economy has reached “an inflection point” and “marking a substantial slowdown from 4.2 percent in Q2 and 3.4 percent in Q3.”
The Commerce Department said the revision of gross domestic product (GDP) growth came after more complete data were used for the final calculations for the October-December quarter.
Once lower consumer spending, outlays by state and local governments and business investment were taken into account, the final figure was well below the 2.5 percent economists had forecast.
It is fairly common to have small revisions in the data, but four tenths is an unusually large change.
However, that downward revision did not change the growth rate for the full year, which remains at 2.9 percent, compared to 2.2 percent in 2017, the report said.
Imports, which subtract from growth, also were revised lower in the period, largely due to the falling cost of oil, offsetting some of the other negative factors.
Earlier this month, the Commerce Department reported that retail sales fell sharply in December, one of the factors acting as a drag on GDP. And they continued to decline at the start of this year.
The latest report also cited lower spending on recreation goods, vehicles, and health care.
The data collection and release were delayed due to the five-week government shutdown as Trump demanded funding for a wall on the border with Mexico, which also sapped consumer and business confidence.