It was a noisy week of Fedspeak and data as market watchers tuned into two full days of testimony from Fed Chairman Jerome Powell in addition to thumbing through GDP and consumer spending data releases.
On Thursday, the Bureau of Economic Analysis released its initial reading of U.S. GDP growth for the fourth quarter of 2018, weeks after its original publication date due to shutdown-related delays. On an annualized basis, Q4 GDP came in at 2.6%.
The fourth-quarter GDP numbers were in line with White House promises of GDP growth of 3%. Real GDP growth for the full-year 2018 was 2.9% but when measuring GDP from Q4 2017 to Q4 2018, that figure is actually slightly above President Donald Trump’s goal: 3.1%.
But many economists expect slower growth in 2019, raising the question: was the fourth quarter the best performance we’ll see in a while?
The Fed has already acknowledged “crosscurrents and conflicting signals” that could turn the tide on otherwise “healthy” current U.S. economic conditions.
Yahoo Finance was on the ground at the National Association for Business Economics conference in Washington, D.C. and talked to experts about their dampened expectations for growth this year.
Tax reform wearing off?
Most NABE attendees said the impressive growth in 2018 reflected the impact of tax cuts enacted in 2017.
But most NABE economists expect that effect to wear off in 2019. Two-thirds of surveyed NABE members expect a boost of only up to 0.5% to GDP in 2019 as a result of the tax cuts. That would provide a modest bump to an already gloomy baseline near-term outlook; 10 percent of NABE survey respondents think the U.S. is headed for recession this year and 42 percent of respondents think the U.S. will dip into recession by the end of 2020.
Weaker economic data is already showing some signs of wear and tear. Data released Friday morning revealed consumer spending falling 0.5% in December, the worst decline in nine years. Diane Swonk, chief economist at GrantThornton, told Yahoo Finance in an interview that those figures align with “ugly” retail numbers from December and a “little weakness” in recent manufacturing readings.
“We’re going to start the year on a weak note,” Swonk said, adding that “we’re not going to get 3% this year.”
The White House doesn’t agree.
Kevin Hassett, head of the White House’s Council of Economic Advisers, told Yahoo Finance Thursday that the stimulus should continue and projects 3.2% GDP growth for 2019. Hassett said his CEA models predicted 3.1% GDP growth for 2018.
“The reason why we’re looking ahead to a good 2019: the model that told us 3.1% told us 3.2% this year,” Hassett said.
An unclear picture on President Donald Trump’s trade policies is also expected to weigh down on the economy.
Susan Lund, a partner at the McKinsey Global Institute, told Yahoo Finance that a lack of clarity on the U.S.-China trade talks and on potential auto tariffs have companies sidelined as they also reconsider their global supply chains. Lund pointed to McKinsey research showing that companies are increasingly looking beyond cost of labor when looking where to place their investments - adding that the trade wars are further complicating those decisions.
Talks between the two largest economies in the world are still ongoing. Shortly after President Donald Trump pushed back the original deadline of March 1, U.S. Trade Representative Robert Lighthizer told Congress that there is still work to be done on getting a deal done with China, particularly on the protection of intellectual property rights.
Senator Mark Warner, a Democrat from Virginia, told Yahoo Finance that forced technology transfer is also complicating talks. Warner, who was a telecommunications executive before his life in Congress, said he is not optimistic that the Trump administration will be able to get concessions out of the Chinese.
“My fear is when the administration got tough on a company like ZTE, once they got the first pushback from China, they buckled,” Warner said, referring to Trump’s deal with ZTE despite the company’s violation of U.S. sanctions. And my fear is they’ll buckle particularly around the technological transfers.”
President Trump and Chinese President Xi Jinping are in talks for a meeting in Mar-a-Lago.
Brian Cheung is a reporter covering the banking industry and the intersection of finance and policy for Yahoo Finance. You can follow him on Twitter @bcheungz.