US economy expanded by 2.2% in Q4 2018, up 2.9% for full year

The US economy expanded by slightly less than expected in the fourth quarter of 2018.

The US economy grew by 2.2 percent in the fourth quarter of 2018, according to the US Commerce Department.

The reading, down from a previous estimate of 2.6 percent, was below what economists surveyed by Thomson Reuters had forecast, of a 2.4 percent increase.

The reading reflects downward revisions to personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment. This was partly offset by a downward revision to imports.

  • Growth in consumer spending was revised down from 2.8% to 2.5% – consumer spending accounts for over two-thirds of the country’s economic activity.
  • Growth in business spending on equipment was revised down from 6.7 percent, to 6.6 percent.
  • State and local spending fell at a 0.4 percent rate.
  • Investment in residential construction was revised to show it contracting at a 4.7 percent rate.
  • Nonresidential fixed investment rose 5.4 percent, up from 2.5 percent in the third quarter.
  • Exports increased by 1.8 percent while imports were up 2 percent.

Corporate profits fell by $9.7 billion in the fourth quarter, after an increase of $78.2 billion in the third quarter, but finished the year up 7.8 percent. Corporations benefited greatly last year from the a reduction in the corporate tax rate to 21 percent.

For all of 2018, the US economy grew by 2.9 percent, up from 2.2 percent in 2017, but just shy of the Trump administration’s goal of 3 percent growth for the year. Growth in 2018 was the strongest since 2015 and was an acceleration from the 2.2 percent logged in 2017.

According to a news release by the US Bureau of Economic Analysis,

“The increase in real GDP in 2018 primarily reflected positive contributions from PCE, nonresidential fixed investment, exports, federal government spending, private inventory investment, and state and local government spending that were slightly offset by a small negative contribution from residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

“The acceleration in real GDP from 2017 to 2018 primarily reflected accelerations in nonresidential fixed investment, private inventory investment, federal government spending, exports, and PCE, and an upturn in state and local government spending that were partly offset by a downturn in residential investment.”