Economy

2.1% GDP Report Offers Support for Bulls and Bears Alike

2.1% GDP Report Offers Support for Bulls and Bears Alike”

Even the USA election for the White House and Congress could end up weakening growth if the campaigns were to further elevate uncertainty among consumers and businesses and thereby lead them to cut back on spending.

Growth is, nevertheless, slowing as the stimulus faded from the White House and Republicans' enormous tax cuts two years ago, a package President Donald Trump had predicted would boost growth persistently above 3%.

"What really matters is the economy in Pennsylvania, Michigan and Wisconsin", Zandi said.

Today's data marks the third quarter of economic growth hovering around the 2 percent mark.

The U.S. economy is likely to have maintained moderate growth in the fourth quarter and again failed to meet the Trump government's ambitious, but elusive, 3 percent annual growth target as corporate investment declined as a result of damaging trade tensions.

All in all, the GDP report is one that should be viewed as more or less tame and not one that was likely to rock the Federal Reserve's view on interest rates at the same time it should not have rocked the markets greatly in either direction.

US GDP increased at a 2.1% annualised rate in the fourth quarter, matching the third-quarter pace, as lower borrowing costs encouraged purchases of cars, houses and other big-ticket items.

While deficit spending can be useful when the economy is stuck in a recession and needs a kick-start, too much deficit spending can slow growth.

Retail inventories had been fixed in December 2019. On the other hand, growth was only 2.1 percent (annual rate) in the 4 quarter, up only 2.3 percent from the 4 quarter of 2018 (compared to 2.5 percent and 2.8 percent in 2018 and 2017, respectively).

Economists estimate the speed at which the economy can grow over a long period without igniting inflation at around 1.8%.

Net-trade mainly contributed positively to growth, which added 1.5 percentage points to the headline figure.

The GDP report included more evidence that the USA was plagued by an investment recession as well as a manufacturing one past year.

Many economists saw Trump's decision to lower trade tensions by signing a Phase 1 agreement with China as key to lowering the risk of a recession this year. Business spending posted a slight decline from the prior year, dropping 0.1% from the fourth quarter of 2018. Boeing on Wednesday reported its first annual loss since 1997.

Support is also expected from a sharp drop in imports in the fourth quarter, in part because of US tariffs on Chinese goods, which compressed the trade deficit.

"The U.S. growth picture arrived spot on with the 2.1 percent economic consensus driven by solid but slowing personal consumption and strong government spending", Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, wrote in an analysis Thursday. Imports in the fourth quarter included the smallest value of inbound petroleum and products in 18 years. A 40-day strike at General Motors also weighed on vehicle inventories.

Business investments - a category known as "nonresidential fixed investment" - plummeted for three consecutive quarters previous year, which analysts at Oxford Economics note is the worst performance since 2009 at the height of the global financial crisis. Yesterday's 1.7% "nowcast" had been lowered from 1.9% on January 28 after the Commerce Department's Advance Economic Indicators showed that fourth-quarter real gross private domestic investment growth decreased from -2.0% to -2.5%.



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