US economic growth in 2018 misses Trump’s 3 percent target

The economy expanded 2.9 percent in 2018 beating previous years but missing Trump’s goal

The US economy kicked into high gear past year, in the wake of sweeping tax cuts, but slowed in the final months, suggesting the boom had begun to fade, according to government data released today.

The 2.6 percent annualized rate of gains in gross domestic product from October to December compared with the 2.2 percent median estimate of economists surveyed by Bloomberg.

U.S. President Donald Trump gestures as artificial snow falls during his address to supporters at a Make America Great Again rally in Biloxi, Mississippi, on November 26, 2018. Many are forecasting that growth this year will slow to around 2.2 percent and to weaken further in 2020.

For the calendar year, the new data points to annual growth of 2.9% in 2018, which matches the growth we saw in 2015. "With the tax cut impacts largely done with, it is hard to see how growth can accelerate sharply".

However, the reading was ahead of expectations for a rate of between 1.8% and 2%. Economists polled by Reuters had forecast GDP rising at a 2.3 percent rate in the fourth quarter.

The economic expansion, now in its 10th year, is the second-longest on record. The economy received a big boost from the largest corporate tax cut in US history that went into effect a year ago, as well as additional government spending on the military and domestic programs.

The fiscal stimulus is believed to have peaked sometime in the fourth quarter. Economists monitor this measure for a better sense of underlying demand.

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In a separate report Thursday, the government said that applications for unemployment benefits, a reflection of layoffs, rose by 8,000 last week to a seasonally adjusted 225,000.

"The first quarter won't be this good", said Paul Ashworth, chief economist at Capital Economics in Toronto.

Slowing growth together with weakening global demand and uncertainty over Britain's departure from the European Union, support the Federal Reserve's "patient" stance towards raising interest rates further this year. Fed Chairman Jerome Powell reaffirmed the US central bank's position in his testimonies before lawmakers on Tuesday and Wednesday. Nonresidential fixed investment contributed 0.82 percentage point to growth following 0.35 point in the third quarter. Growth in consumer spending, which accounts for more than two-thirds of USA economic activity, increased at a still strong 2.8 percent rate in the fourth quarter.

The main reason grows fell in the fourth quarter: a decline in consumer spending.

Net exports subtracted 0.22 percentage point from GDP growth during the quarter following a 1.99-point reduction in the prior period.

The U.S. economy turned in a solid performance in 2018, boosted in part by tax cuts and higher government spending. Business investment spending came in at a strong 6.2 percent annual rate, up from 2.5 percent in the previous quarter.

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