Home Economics Domestic Consumption Still Driving US GDP

Domestic Consumption Still Driving US GDP

Stockholm (Ekonamik) – According to figures published by the Bureau of Economic Analysis (BEA), the US economy grew by 2.6% in the last quarter of 2018, down from 3.4% in the previous quarter. The figures were published with some delay on account of the government shutdown. The information refers to preliminary data based on incomplete information. The final numbers will be released on March 28.

The figures continued to provide support for the view that the main effect of the Trump tax cuts was to increase consumption rather than long term investment, as some had hoped. According to the report, “The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, nonresidential fixed investment, exports, private inventory investment, and federal government spending. Those were partly offset by negative contributions from residential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.”

The results were better the 1.8% growth suggested by the Atlanta Fed’s GDPNow nowcast, on the eve of the data release. The nowcast had been approximately correct until February 14, at which point it was brought down by disappointing retail trade, industrial production, wholesale trade and housing starts data updates.

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“All in, this was not a bad report,” according to Douglas Porter, CFA, Chief Economist at BMO. “the impact of tax reforms is ebbing, but there is enough underlying support to keep American households and businesses in a spending mood. Given the weak hand-off and government shutdown, GDP growth will downshift further in Q1, but it could return to Q4’s pace in the spring,” he concluded.

“In terms of the outlook for the first quarter, things look to be in decent shape despite the disruption from the government shutdown. Employment growth is strong and wages are accelerating, which should support consumer spending”, commented James Knightley, Chief International Economist at ING. “At this early stage we suspect something in the 2-2.5% range for 1Q GDP growth looks possible.”

GDP figures were also published for other countries and displayed a general downward trend. Mexico grew by 1.7% in the last quarter of 2018 in annual terms, down from 2.5% in comparison to the same period in 2017. On average Mexican GDP grew by 1.9% in 2018, down from 2.3% in 2017. Brazilian GDP grew by an average of 1.1% in 2018, constant from 2017 when it recovered from the economic contractions in 2015 and 2016. In Europe, French GDP was also down on average from 2.3% in 2017 to 1.5% in 2018. Following strong growth in the first quarter of 2018 and 2.4% seasonally adjusted growth in the last quarter, Swedish GDP grew by an average of 2.45% in 2018, up from 2.3% in 2017. Danish GDP grew by 1.2% on average in 2018, down from 2.2% in 2017. Portuguese GDP grew by 2.1% on average in 2018, 0.7 percentage points less than the rate of change registered in 2017.

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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