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U.S. Economic Growth Slows, Officially

The recent tax cut boosted economic growth, as expected, but now growth may be slowing…

  • March 20, 2019

The recent tax cut boosted economic growth, as expected, but now growth may be slowing due to several factors. There’s also the possibility that government reports are “lowballing” growth.

According to an “initial” estimate released by the government’s Bureau of Economic Analysis, real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of 2018.

In the third quarter, real GDP increased 3.4 percent.

However, the Bureau attached some important caveats:

Due to the recent partial government shutdown, this initial report for the fourth quarter and annual GDP for 2018 replaces the release of the “advance” estimate originally scheduled for January 30th and the “second” estimate originally scheduled for February 28th.

The Bureau emphasized that the fourth-quarter initial estimate is based on source data that are incomplete or subject to further revision by the source agency.

Updated estimates for the fourth quarter, based on more complete data, will be released on March 28, 2019.

So what’s happening here?

One possibility is that the government’s estimate is getting things wrong, and the later revision will be more in line with the recent trend. In other words, this estimate – based on incomplete information — is possibly underestimating 4Q growth.

But most economist believe that the economy really is slowing a bit. For one thing, the global economy is slowing, and this will have an effect on the U.S., tax cuts or no tax cuts.

Higher interest rates are putting a damper on economic activity. This is most noticeable in home sales, which have slowed after years of robust growth.

Auto loan delinquencies are up, as consumers struggle with the twin monsters of high new vehicle prices and higher auto finance rates.

Business leaders have grown more cautious.

One big indicator of whether these stats are accurate will be the jobs report due on Friday. Another will, of course, be the revised growth report due late this month.

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