• The American economy grew by 2.1% annualized in the fourth quarter, a hair above the median forecast of 2.0%, but matching its performance in the third quarter.
  • Personal consumption expenditure decelerated to 1.8% (from 3.2% in Q3). Goods consumption growth led the slowdown, rising 1.2% (from 5.3% previously).
  • Non-residential fixed investment fell (-1.5%) for the third quarter in a row, led by structures (-10.1%). Equipment investment also fell 2.9% (the second straight quarter of contraction). As usual, investment in intellectual property bucked the trend, rising 5.8%.
  • On an accounting basis, the biggest support to growth was net-trade, which added 1.5 percentage points to the headline number. Exports rose 1.4%, but imports fell 8.7% in the quarter. This was offset by a negative contribution from inventory investment, which subtracted 1.1 percentage points from growth.
  • Inflation was soft in the quarter, with the GDP deflator rising 1.5% (annualized) and the personal consumption deflator up 1.6%.

Key Implications

  • This marks the third quarter of economic growth hovering right around the two percent mark. The days of three percent growth are in the rear-view mirror, but the American economy should continue to grow around this pace over the next year, enough to keep downward pressure on the unemployment rate and, gradually, upward pressure on inflation.
  • The two elements to watch in the next year are business investment and consumer spending. Investment was the weakest spot for the economy in 2019, beset by trade uncertainty and struggling global growth. With some modicum of certainty on the trade front, this should see modest improvement over the next year. At the same time, consumer spending, which has been a growth stalwart, is likely to slow modestly this year. The fundamentals remain solid, but neither interest rates nor household wealth are likely to be as supportive to spending as they were over the past year.


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