After a month delay due to government closure, the Commerce Department will release its preliminary estimate of economic growth in the fourth quarter at 8:30 am Thursday. Here's what to watch for.
The US economy is slowing down. The question now is to know how far and how far this slowdown will continue.
The forecasters surveyed by Bloomberg estimate that gross domestic product – the largest measure of goods and services produced in the United States – has grown 2.2% annually over the last three months of last year. This would mark a net slowdown compared to the middle of the year, when a high sugar rate fueled by tax cuts briefly pushed growth above 4%.
This year announces even worse. Many economists expect growth to fall below 2 percent in the first quarter, in part because of the partial closure of the government, which began in December and continued for the better part of the year. part of January.
It is important to keep the cooling economy in perspective. Unless surprise, Thursday 2018 will probably end up being among the best years of the decade of recovery after the Great Recession. And most economists do not expect a recession this year, which should allow the current expansion to become the longest ever.
"I think it's a slowdown," said Lewis Alexander, chief economist of the United States for Nomura. "I do not think it's" we fall into an abyss ".
A good year – but what quality?
One thing is unresolved in Thursday's report: bragging.
President Trump and his advisers have repeatedly promised that last year's growth figure would reach 3% and remain stable for years. The United States has not had a full year of growth above 3% since 2005, when George W. Bush was president.
So, did Mr. Trump reach his target in 2018? It will be close. The answer could come down to a obscure methodological distinction.
Economists calculate G.D.P. annually. growth in two slightly different ways. One method, used by the Congressional Budget Office and commonly cited in the media, is based on the average size of the economy over a full year. The other approach, favored by the Federal Reserve and most Wall Street forecasters, is only for the fourth quarter compared to the same period of the previous year. (The Department of Commerce presents the two figures.)
According to the first method, Mr. Trump was almost certainly below his target of 3%. But with the second method, the economy will achieve this goal as long as Thursday's report meets the expectations of economists. Do not be surprised if Democrats and Republicans issue dueling press releases, each highlighting the number that best serves them.
Growth of 3% can be politically important, but it makes little difference economically. The difference between 2.9% and 3% growth is negligible each year, and in all cases the Commerce Department will revise its fourth-quarter estimates in March.
And even if the economy reached Trump's goal in 2018, it is unlikely this feat will happen again this year. The Fed expects growth in slow to 2.3% in 2019, and many economists are even more pessimistic.
Signs of problems are growing
Clouds have accumulated on the economy for a while. The real estate market slowed sharply in 2018 as rising interest rates and declining affordability weighed on construction and sales. Business investment has weakened over the course of the year. And retail sales fell unexpectedly in December, a sign that consumers – who have long been the foundation of the recovery – are starting to retreat.
Economists point to several factors to explain the slowdown. Rising interest rates made it more expensive to buy homes, cars and other expensive items. The tax cuts signed by Trump at the end of 2017 helped boost spending early in 2018, but these effects began to fade. Trade disputes have resulted in higher costs and increased uncertainty for many manufacturers, making them less inclined to invest.
"One important factor was the uncertainty surrounding the trade," said Joseph Song, economist at Bank of America Merrill Lynch. "This has dispelled the optimism generated by tax cuts."
The closure of the government has added to the problem. Unused funds have slowed hundreds of thousands of federal workers, left hundreds of thousands out of work and disrupted air travel, among other things. Consumer confidence plunged.
The closure was probably too late to make much of a difference from the fourth quarter, but it could weigh heavily on growth early in the year. Macroeconomic Advisers, a forecasting company, estimates that growth has slowed to an annual rate of 1.2% in the current quarter.
Such low growth would leave the United States with little protection against an unexpected series of bad news – an escalation of the trade war with China, for example, or a new round of fiscal maneuvers around the debt ceiling. A growing share of economists expect a recession in 2020, if not sooner.
"The economy is already slowing down and there are many reasons to slow down further, which makes you vulnerable," said Alexander de Nomura. "It would take less shock to push you over the edge" into recession.
It might not even take a shock at all. If businesses and consumers worry about the economy, this could trigger a vicious circle of spending cuts and job cuts, said Lindsey Piegza, Chief Economist for Stifel Fixed Income.
"The recession is almost going to win us," she said. "This time, it's not a bubble bursting. It's the air slowly coming out of the balloon. "
Is there a reason to be optimistic?
Not everyone is so pessimistic. Most economists believe that this closure has done little to damage the economy in the long run. Consumer confidence In February, federal officials resumed work and the stock market recovered from its December collapse. Job growth has never suffered.
There are other reasons to think that the economy could be resilient. Trade tensions with China seem to have eased somewhat in recent weeks. The US Federal Reserve has waived its intention to raise interest rates. And the combination of low unemployment, rising wages and low oil prices should help boost consumer spending.
"All the fundamentals are there for a solid recovery of consumers," said Michael Pearce of the capital economy.