NEW YORK (Reuters Breakingviews) - The U.S. economy isn’t quite allowing President Donald Trump a victory lap. But nor is it providing much fodder for critics. GDP growth slowed in the last quarter of 2018, still almost hitting the administration’s 3 percent target for the full year. The president, the Federal Reserve and market watchers can all take what they want from that.
A 2.6 percent pace of expansion in the final three months of last year topped the expectations of economists polled by Reuters. Growth was underpinned by consumer spending, the traditional mainstay of U.S. economic activity, and – more surprisingly in a quarter beset by stock-market volatility – by business investment.
Real GDP increased 2.9 percent for the year. Unfortunately for Trump, that merely matches the best annual performance under his predecessor, in 2015. He’ll have to wait another year, at least, to top Barack Obama’s record and claim economic vindication for the tax cuts that powered corporate earnings in 2018.
Meanwhile, Jerome Powell’s Fed, now in “patient” mode rather than eager to raise interest rates further, can see that stance reflected in the economy. Growth neither overheated nor slowed much in the most recent quarter and 2018 as a whole. The personal consumption expenditures price index rose 2 percent last year, right on the central bank’s inflation target.
All that said, two-thirds of this year’s first quarter has already elapsed, including most of January with the government partially closed because of budget fights in Congress. The shutdown even delayed Thursday’s GDP report. Economists expect it to dent economic growth this quarter, though the effect should largely reverse later.
The bigger question is whether last year’s tax-cut stimulus will stoke sustainably faster growth. There are also headwinds. Trump has lately de-escalated trade tensions with China, by delaying additional tariffs on imports and toning down his rhetoric. But risks to trade remain, even as the International Monetary Fund and others have downgraded forecasts for global growth.
There’s also the possibility of further battles in Washington over federal spending and borrowing. The Goldilocks fourth-quarter GDP report, as Action Economics called it, offers something for everyone, including those who are still worried about this year’s outlook.
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