U.S. Economy’s Growth Slows As It Enters 2019

On February 28, the U.S. Bureau of Economic Analysis reported that the country registered 2.6 percent annualized growth in real gross domestic product (GDP) for the fourth quarter of 2018. While down from the 3.8 percent growth seen during the middle of the year, it continues to represent strong growth.

“[The GDP] numbers represent a slowdown from the 3.8 percent average growth during the middle of last year,” says Brian Schaitkin, senior economist at The Conference Board. “However, they also illustrate that the economy was still enjoying solid growth at the end of last year despite headwinds from slowing global growth, fears of tighter monetary policy, trade policy uncertainty and a partial government shutdown. Since the beginning of 2019, the business environment has improved with many of these headwinds easing. During 2019, growth is likely to slow down towards the economy’s long-term two percent trend as support from fiscal policy is reduced, but more gradually than anticipated at the beginning of the year.”

Looking at data for the beginning of the year, the Conference Board’s Leading Economic Index for January was unchanged from December, remaining at 111.3. This follows a 0.1 percent decline in December and a 0.1 percent increase in November.

Schaitkin adds, “The Federal Reserve has signaled that it will postpone further interest rate hikes until signs of rising inflation emerge and cease balance sheet normalization activities towards the end of this year. Stock price gains since the announcement of these policy shifts illustrate that if they are executed, business confidence is likely to rise. Firms facing lower capital costs may invest more. If inflation accelerates though, the Federal Reserve could start raising rates again, dimming business investment appetites and consumer spending.

“While the US economy in 2019 is likely to grow at a slower pace than it did during the middle of 2018, due to both the expiration of fiscal measures and slower global growth, Federal Reserve policy will play a key role in shaping the scale of this slowdown. If the bank delivers on its policy shift while keeping inflation under control, the growth slowdown from 2018 to 2019 will be less dramatic.”

The Conference Board’s Coincident Economic Index, a measure of current economic activity, increased in January, rising 0.1 percent to 105.7, following a 0.4 percent increase in December and a 0.2 percent increase in November. Its Lagging Economic Index, an indicator representing changes that come only after the economy has begun to follow a particular trend, ticked up 0.4 percent in January to 106.8 after an increase of 0.4 percent in December and a 0.4 percent increase in November.

The Conference Board’s indexes are composites of leading, coincident and lagging economic indicators designed to highlight peaks and troughs in the business cycle that could be obscured by volatility within individual components. The LEI is comprised of 10 indicators. These include average weekly hours, manufacturing; average weekly initial claims for unemployment insurance; manufacturers’ new orders, consumer goods and materials; the Institute of Supply Management Index of New Orders; manufacturers' new orders, nondefense capital goods excluding aircraft orders; building permits, new private housing units; stock prices, 500 common stocks; the Leading Credit Index; the interest rate spread, 10-year Treasury bonds less federal funds; and average consumer expectations for business conditions.

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