US economic growth slows in Q4, but still robust

Figures published recently after a delay of about four weeks show annualised growth of 2.6 per cent in the US economy in the fourth quarter. The consequences of the shutdown at the turn of the year are still clear, and most statistical agencies were also affected. The resulting negative impact on macroeconomic production is barely noticeable in the figures for the final quarter, although federal institutions did not shut down until 22 December. Generally speaking, the slacker growth after two previously strong quarters is as expected. One positive factor is the continuing acceleration of investment in equipment and machinery. The further contraction in housebuilding is disappointing, but not surprising.

We still expect US economic growth to reach around two per cent this year. Solid growth, but a clear decline compared to 2018, when a figure of 2.9 per cent was reported. Continuing positive sentiment at companies and among consumers signals an intact growth phase, a view supported by very strong job growth in the private sector at the beginning of the year. However, we expect only very meagre growth in the US economy in the current quarter, with the dampening effects of the shutdown ultimately likely to filter through.

Given the very entrenched positions of the two party blocs and the President, we do not expect any pent-up demand for private consumption, and surveys show a deterioration in consumer expectations. Large purchases are likely to be weighed up carefully or even deferred. The extremely cold winter weather which held large parts of the country firmly in its grip at the end of January has undoubtedly had an adverse effect. However, thanks to a very buoyant job market, consumption should also deliver a significant growth contribution this year. Last year’s strong growth rate will nevertheless not be matched.

The picture is similar for investment, although there is a very wide divergence between trends in construction, and machinery and equipment. Construction investment is expected to show very weak growth this year due to the slowdown in housebuilding in recent quarters. The deterioration in sentiment militates against a strong recovery.

However, the visible momentum for investment in machinery and intellectual property rights signals solid investment activity over the rest of the year. Intellectual property rights include software products, but also industrial patents and research and development. Investment in both sectors increased by nearly eight per cent last year compared to the previous year. The reduction in corporate tax at the beginning of the year has undoubtedly had an impact here. After moderate growth in the third quarter, investment activity for machinery and equipment picked up again strongly in the final quarter. There are no signs of a steep downturn. Equipment investment should also therefore contribute growth of around 0.6 percentage points this year, which is above the long-term average.

President Trump will not be happy that foreign trade curtailed growth for the fifth successive year in 2018. The outcome of the ongoing trade talks with China is also unlikely to lead to any significant change here, with braking effects expected to persist this year.

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