US Economy Slowed Down In Q4 2018, GDP Revised Down To 2.2%

U.S. corporate profits failed to improve for the first time in more than two years even as revised data showed GDP growth decelerating more than expected to 2.2 percent during the fourth quarter of 2018.

Economists said there are signs the slowdown in business growth continued into Q1 2019. They reported small gains in retail sales and unremarkable growth in homebuilding and manufacturing production. The second quarter of 2019 might see a continuation of this trend.

Federal data confirms weak profits in the fourth quarter of 2018. Surprisingly, after-tax corporate profits were unchanged for the first time since the third quarter of 2016. This metric grew at a 3.5 percent rate in the third quarter of 2018.

Growth in consumer spending came in at a 2.5 percent rate in the fourth quarter instead of the previously reported 2.8 percent. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is being boosted by the strong labor market and the rising number of employed persons.

Growth in business spending on equipment was revised by the government to the lower figure of 6.6 percent from a 6.7 percent. Investment in intellectual products was cut to a 10.7 percent rate from the 13.1 percent pace.

The revised figure for investments in residential construction now shows it contracting at 4.7 percent instead of 3.5 percent rate, marking the fourth straight quarterly decline.

Analysts note this sobering data reflects the slowing down of the broader U.S. economy, which is being battered by weak global growth and the intractable trade war with China. Then there’s Brexit and the economic and political uncertainties it’s unleashed that are bad for business.

Combined, these factors contributed to the U.S. Federal Reserve’s decision last week to rule out any more rate hikes for this year after increasing borrowing costs four times in 2018.

The much weaker U.S. economy, however, is the biggest drag on business. Revised federal data released Thursday shows the economy slowing more than initially thought in Q4.

U.S. GDP rose at only a 2.2 percent annualized rate, said the U.S. Department of Commerce on in its third reading of fourth-quarter GDP growth. That revision compares to the 2.6 percent pace estimated in February. The economy grew 3.4 percent in Q3 2018.

Economists said the revisions to the Q4 GDP reading reflects weaker consumer and business spending, as well as lower government outlays and investment in homebuilding.

For the full-year 2018, the economy grew 2.9 percent as previously reported. The Trump administration’s fiscal stimulus in the form of $1.5 trillion in tax cuts and more government spending has now worn off.

Growth in 2018, however, was the strongest since 2015 and compares favorably to the 2.2 percent logged in 2017.