4Q 2018 GDP shows U.S. economy is better than thought

The U.S. economy was better than expected at the end of 2018, but it’s probably too soon to give it a clean prediction of health for 2019. That’s the main takeaway from the shutdown-delayed yesterdays report on fourth-quarter GDP, which cooled by less than expected (2.2 percent) to a 2.6 percent annualized gain thanks to surprisingly robust business investment and a stalwart consumer.

The figures sent Treasuries lower and the dollar higher, and the Federal Reserve’s patience on interest rates is likely to support growth in coming months. But the longest government shutdown in U.S. history is poised to dent first-quarter expansion, while slowing global growth, President Donald Trump’s trade war and the fading impact of fiscal stimulus together suggest the economy will have a harder time sustaining momentum.

US GDP 2019-4Q

Inflation remained muted in the GDP report, adding little urgency for resuming interest-rate hikes. The Fed’s preferred price index rose at a 1.5 percent annualized pace last quarter, below the central bank’s 2 percent goal. Excluding food and energy, the index rose 1.7 percent.

The report gave the White House an economic milestone to boast about, as the Republican-backed tax cuts helped bring full-year growth to 3.1 percent, just above Trump’s 3 percent goal. The expansion is poised to become the nation’s longest on record at midyear.

Source: Bloomberg

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