US Economy Heads Into 2020 With Steady Growth

Friday, January 31, 2020

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The U.S. economy headed into 2020 on a solid footing, with growth settling back to the roughly 2% pace that has prevailed during the decade-old economic expansion.

Gross domestic product—the value of all goods and services produced across the economy—grew 2.3% last year, after rising at a seasonally and inflation-adjusted annual rate of 2.1% in the fourth quarter, the Commerce Department said.

Year-over-year growth of 2.3% was the slowest pace since 2016, but in line with the average pace that has marked the expansion that began in mid-2009.

The economy was buffeted last year by the U.S.-China trade dispute and a slowing global economy, but was buoyed by a strong domestic labor market that fueled consumer spending and optimism.

Many economists expect the U.S. economy to grow at about the same pace in 2020, given the recent trade truce between the U.S. and China, forecasts for a rebound in global growth, low interest rates and upbeat American consumers.

Despite the hit to business investment from the trade war, “behind the scenes, we actually saw the consumer side looking pretty solid,” said Brian Coulton, chief economist at Fitch Ratings.

The economy’s expansion last quarter reflected a boost from trade as exports increased and imports dropped sharply, amid slower U.S. household spending and higher tariffs on imports from China.

How PMIs Signal Early Warnings for the Economy

In 2018 and 2019 during the U.S.-China trade war, investors and policy makers embraced global manufacturing PMIs as a leading barometer of economic health. WSJ explains how purchasing managers can offer an early look at the direction of the economy.

Consumer spending rose at a 1.8% annual rate in the fourth quarter of 2019 from a 3.2% pace the prior quarter, and business investment dropped for the third quarter in a row, while residential investment picked up.

“Big picture, the headline growth was solid but masking some weakness” in domestic demand, said Jeremy Schwartz, an economist at Credit Suisse, citing slowing consumer spending and trade volatility.

The Federal Reserve left its benchmark interest rate unchanged on Wednesday, maintaining its make-no-move posture, after cutting rates three times in the second half of 2019. The Fed expects moderate economic growth to continue, Fed Chairman Jerome Powell said Wednesday.

Source: Wall Street Journal

Category: Economic News