US economic growth resilient amid global headwinds — analysts


A smaller fourth-quarter slowdown than feared should reassure investors over US economic growth in 2019 amid uncertainty over trade and the global outlook, according to economists and market strategists.

The commerce department on Thursday revealed that gross domestic product (GDP) grew at an annual rate of 2.6 per cent in the fourth quarter, according to an initial estimate. While markedly slower than the 3.4 per cent rise seen in the third quarter, and the second quarter’s blockbuster number of 4.2 per cent, growth in the final three months of 2018 was better than the average forecast of 2.3 per cent.

For the full year, GDP growth stands at 2.9 per cent, up from 2.2 per cent in 2017. It was also the first year since 2004 to show GDP growth of at least 2 per cent in each quarter, according to Bespoke Investment Group.

James Knightley, chief international economist at ING, said non-residential investment helped pick up the slack in the fourth quarter as other indicators softened. Consumer spending also proved resilient, he added, expanding 2.8 per cent despite market turmoil during the quarter and a surprise drop in December retail sales.

“This isn’t a bad outcome at all,” he wrote in a note to clients.

Charlie Ripley, senior investment strategist for Allianz Investment Management, said data on spending indicate the US consumer is “alive and well.”

“Overall, with expectations fairly low going into this report, this was a positive surprise that should reinforce the overall health of the US economy for investors,” Mr Ripley added.

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Economic growth in the range of 2 per cent to 2.5 per cent “looks possible” for the first quarter of 2019, Mr Knightley said, given the end of the US government shutdown and a better backdrop related to financial markets and trade:

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. Equity markets have rebounded sharply, recovering the October-December losses, while gasoline prices remain subdued, helping to boost household real disposable incomes. The trade truce is also a positive development, but obviously a concrete deal in the coming months that would lead to a clear de-escalation of US-China tensions would be ideal. Imports may reverse after the surge in 2H18, but inventories are also likely to be run down for the same reason.

Bankrate.com senior economic analyst Mark Hamrick said the outlook for 2019 appears more muted due to fading global growth and less stimulus from President Donald Trump’s 2017 tax cuts. However, the fourth-quarter reading “adds some reassurance” after December’s market sell-off and suggests “only a modest negative impact from the partial government shutdown.”

“The US economy wasn’t so bad in the final months of last year after all. In fact, it looked pretty good overall,” Mr Hamrick said.

“If anything, the Q4 estimate, subject to revision in a month, should help to comfort the Federal Reserve from the standpoint of fear of a more substantial near-term downturn. The US economy was far from contraction in the final three months of the year.”

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