US economy expands 2.9% in 2018, just shy of Trump target

March 01, 2019 09:45
Consumer spending in the US has been underpinned by a strong labor market, but 2019 is likely to see some moderation amid reports of smaller tax refunds. Photo: Reuters

The US economy expanded 2.9 percent in 2018, falling short of the Trump administration's 3 percent annual growth target despite US$1.5 trillion in tax cuts and a government spending blitz, Reuters reports.

The growth, however, was the strongest since 2015 and better than the 2.2 percent logged in 2017, the report noted, citing data released by the US Commerce Department on Thursday. 

Gross domestic product increased at a 2.6 percent annualized rate in the fourth quarter after advancing at a 3.4 percent pace in the July-September period.

The fourth-quarter figure topped market expectations, with economists polled by Reuters having predicted only 2.3 percent growth on average for the three months.

The stronger-than-expected fourth-quarter performance, which reflected solid consumer and business spending, came despite many headwinds, including financial market volatility and a trade war with China, raising optimism that an anticipated slowdown this year would not be abrupt.

The fourth-quarter GDP report was delayed by a 35-day partial shutdown of the government that ended on Jan. 25, which affected the collection and processing of economic data.

The Commerce Department said it could not quantify the full effects of the shutdown on fourth-quarter GDP growth.

Economists expect the longest shutdown in history will hurt growth in the first quarter this year. Growth in consumer spending, which accounts for more than two-thirds of US economic activity, increased at a still strong 2.8 percent rate in the fourth quarter. 

Consumption continues to be underpinned by a strong labor market, with inflation-adjusted income at the disposal of households jumping at a 4.2 percent rate in the fourth quarter compared to a 2.6 percent pace in the prior period.

A moderation in spending is, however, likely amid reports 2018 tax refunds have been smaller than in the previous years.

Residential construction contracted at a 3.5 percent rate in the fourth quarter, marking the fourth straight quarterly decline.

Homebuilding has been weighed down by higher mortgage rates, land and labor shortages as well a tariffs on imported lumber.

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