U.S. Economic Growth Revised Down to 2.2 Percent Rate in Q4

The increase in the gross domestic product was revised down from an initial estimate of 2.6 percent growth in the fourth quarter.

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U.S. economic growth slowed sharply in the fourth quarter last year to an annual rate of just 2.2 percent. There are concerns that growth has slowed even more in the first quarter this year as global weakness, fading government stimulus and rising trade tensions take a toll on the economy.

The increase in the gross domestic product, the economy's total output of goods and services, was revised down from an initial estimate of 2.6 percent growth in the fourth quarter, the Commerce Department reported Thursday. The change reflected weakness in a number of areas. Consumer spending, business investment, government spending, and housing all came in lower than first thought.

Economists believe growth has slowed further in the current January-March quarter. That would represent a very slow start to 2019 with analysts forecasting growth this year will slip to around 2.4 percent, down from last year's 2.9 percent gain, which had been the best performance since 2015.

Sal Guatieri, senior economist at BMO Capital Markets, called the GDP report "somewhat disappointing" but said some of the fourth quarter slowdown came from the 35-day partial government shutdown.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, forecast growth this year of 1.5 percent in the first quarter, then rebounding to 3.2 percent in the second quarter.

Economists believe the expected slowdown stems from various headwinds, including weaker growth prospects in China and Europe, the dampening effects on U.S. exports from the administration's trade battles and the waning boost from the 2017 tax cut and government spending.

Deceleration is expected, despite a decision by the Federal Reserve to do an about-face earlier this year and signal that it planned to keep its benchmark interest rate on hold for the entire year in response to the soft-patch the economy has entered.

President Donald Trump and other administration officials highlighted last year's GDP performance as evidence that the administration's policies of tax cuts, deregulation and tougher trade enforcement were working. The administration has pledged to boost growth above 3 percent on a sustained basis.

This forecast is well above the estimates of most private economists who believe that growth will revert to the modest pace seen throughout this expansion of around 2 percent. They cite slow growth in the labor force and weak productivity gains as key reasons why the country will not be able to sustain annual gains of 3 percent or better.

In a separate report Thursday, the government said that applications for unemployment benefits, a reflection of layoffs, fell by 5,000 last week to a seasonally adjusted 211,000. The result suggests that businesses are keeping their workers in a tight job market.

The economy's 2.2 percent annual growth rate last quarter, though solid, was the slowest since a similar 2.2 percent pace in the first quarter of 2018. That was followed by two strong quarters with GDP growth of 4.2 percent in the second quarter and 3.4 percent in the third quarter.

Thursday's GDP report from the Commerce Department was the final look at the fourth quarter.

The report showed that consumer spending slowed to a solid growth rate of 2.5 percent in the fourth quarter. Business investment spending came in at a strong 5.4 percent annual rate.

Government spending fell at a rate of 0.4 percent. Domestic spending by the federal government was revised lower to show a 6.1 percent rate of decline, likely reflecting the impact of the 35-day partial government shutdown.

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