US economy grows steadily in 4Q, but virus clouds outlook

February 28, 2020 10:09
The US manufacturing sector is expected to take a hit through supply chain disruptions due to the China coronavirus crisis. Photo: Reuters

The US economy grew moderately in the fourth quarter, supported by a smaller import bill, the government confirmed on Thursday, but the prospects going forward remain hazy as the China coronavirus outbreak sparks fears of a global pandemic.

Gross domestic product increased at a 2.1 percent annualized rate, the US Commerce Department said in its second estimate of fourth-quarter GDP, Reuters reports.

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 percent in 2019, the slowest annual growth in three years and missing the White House’s 3 percent growth target for a second straight year, the report noted.

Financial markets see the coronavirus epidemic as the catalyst that could break the longest US economic expansion on record, now in its 11th year. 

Though there is so far no real evidence that the coronavirus epidemic is impacting the US economy, the manufacturing sector is expected to take a hit through supply chain disruptions and exports.

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, the report noted.

Economists also worry that corporate profits could come under pressure and undercut the labor market, the economy’s main pillar of support.

Excluding trade, inventories and government spending, the economy grew at a 1.3 percent 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 percent pace in the fourth quarter.

Business investment fell at a steeper 2.3 percent rate in the fourth quarter, instead of the previously reported 1.5 percent pace.

It was the third straight quarterly decline and the longest such stretch since 2009, according to the report. 

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, slowed to a 1.7 percent pace in the fourth quarter, instead of the previously reported 1.8 percent rate.

A decline in imports in the fourth quarter, in part because of US tariffs on Chinese goods, compressed the trade deficit.

Trade added 1.53 percentage points to GDP growth, rather than the 1.48 percentage points reported last month. That was the most since the second quarter of 2009.

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