NEW YORK – United States economic growth cooled by more than initially reported last quarter on revisions to consumer and government spending, signaling mounting challenges to the expansion as it nears a record duration.
Gross domestic product grew at a 2.2 percent annualized rate, Commerce Department data showed Thursday, less than the initial 2.6 percent reading and projections for a revision of 2.3 percent. Consumer spending, biggest part of the economy, grew at a downwardly revised 2.5 percent pace that also missed projections.
The final reading on a turbulent quarter that included U.S. stocks tumbling to the cusp of a bear market adds to concerns for the world’s biggest economy as global headwinds gather from Europe to China. While Federal Reserve Chairman Jerome Powell said this month that underlying economic fundamentals remain strong, policy makers have cut their outlook for growth this year and next and forecast no interest-rate hikes for 2019.
While the expansion is poised to become the nation’s longest on record at midyear, the downward revision indicates that the economy had weaker momentum heading into 2019, when various indicators in housing and manufacturing have been showing signs of cooling.
Economists surveyed by Bloomberg project that growth in GDP, which measures the value of all goods and services produced in the country, will slow to 1.5 percent in the first quarter, the slowest pace in two years.
The less-robust reading – which followed 3.4 percent growth in the third quarter – reflected broad revisions to spending on consumer goods, including recreational goods and vehicles. State and local government spending was downwardly revised on investment in structures, while business fixed investment was reduced on software spending.
The report kept intact an economic milestone that President Donald Trump has boasted about, as the Republican-backed tax cuts helped bring full-year growth to 3 percent, as measured on a fourth-quarter-over-fourth-quarter basis. That was the fastest since 2005 and compares with the initial reading of 3.1 percent. The White House has set a 3 percent goal for expansion.
Meanwhile, there is some risk that Trump’s tariffs could weigh on future growth. Net exports remained a drag on the expansion.
Excluding the volatile trade and inventories components of GDP, final sales to domestic purchasers increased at a downwardly revised 2.1 percent pace after 2.9 percent in the third quarter. Economists monitor this measure for a better sense of underlying demand.
The report also gave the first read on business earnings in the fourth quarter. Pretax corporate profits fell 0.4 percent from the prior quarter for the first decline since early 2017, though profits still rose 7.4 percent from a year earlier.
While the expansion has moderated, the labor market has remained in generally solid shape despite some recent gyrations. Payrolls grew by an average of 186,000 over the past three months as the unemployment held around the lowest levels in a half century.
A separate report from the Labor Department Thursday showed filings for unemployment benefits fell to a two-month low. Jobless claims decreased to 211,000 in the week ended March 23, below what economists had forecast.
Government spending was revised to a 0.4 percent annualized drop from an initial reading that showed a 0.4 percent gain. Inflation remained contained, as the personal consumption expenditures price index, excluding food and energy, rose at a 1.8 percent pace that was revised up from 1.7 percent. Gross domestic income, adjusted for inflation, rose 1.7 percent after a 4.6 percent gain the prior quarter. Due to the government shutdown in December and January, the advance estimate scheduled for Jan. 30 and second estimate due Feb. 28 were replaced by an “initial” fourth quarter report that combined the first and second readings. The advance first-quarter estimate will be released April 26.
Jeff Kearns is a reporter for Bloomberg News.