US economy slows as growth dips to 2.6% in Q4 - as it happened

Graeme Wearden

from on 2019-02-28 21:09 (#4A2AT)

America's economy cooled last quarter, but not as much as feared, as consumer spending slowed

Latest: US GDP shows economy slowing
American economy expanded by 2.9% - Trump wanted 3%
US GDP rose by 2.6% in Q4, down from 3.4% (annualised).

Earlier:

9.09pm GMT

And finally, Wall Street has ended a good month on a low note.

8.52pm GMT

Here's some more of today's business news:

8.47pm GMT

It's been a grim day for Aston Martin investors.

Shares in the luxury carmaker slumped more than 20% after it revealed a loss for last year, due to the 136m cost of its stock market float.

4.10pm GMT

President Obama's top economic advisor back in the day, Jason Furman, has tweeted some interesting points about today's US GDP report.

Furman (hardly a Trump cheerleader) argues that the Q4 2018 vs Q4 2017 growth number gives a better picture than the 2018 vs 2017 one.

A solid 2.6% GDP growth rate for Q4 brings the headline annual average growth rate for 2018 to 2.9% (or 3.1% for Q4/Q4 which is a better measure of how the economy actually performed in 2018).

Consumption growth has held up strongly most of this year while investment began with a bang (partly temporarily elevated by oil-related investment) but ended with a whimper (partly temporarily reduced by oil-related investment).

Given the large amount of fiscal stimulus in 2018 is unlikely to be repeated and the labor market has less room than it did a year ago, is very likely this is a high water mark for the recent period. Growth in 2019 is tracking around 1% and potential growth is around 1.75%.

Mostly this tells you about demographic shifts and productivity trends shared across the advanced economies, not anything much about the current or previous President.

2.56pm GMT

Kay Daniel Neufeld, managing economist at the CEBR thinktank, is relieved that America avoided an abrupt slowdown in the last quarter.

However, he also expects growth will be slower in 2019 - averaging 2.3% (again, below that 3% target).

Contrary to most other large economies, the US has bucked the trend and recorded faster GDP growth in 2018 than in the previous year. The weak retail sales recorded for December alarmed analysts fearing an abrupt slowdown to the US expansion in the final quarter of last year, but today's stronger than expected GDP data suggest the December figures might have been a blip.

Nevertheless, there is little room for complacency. With the world economy slowing and the US -China trade conflict merely on hold, there are plenty of pitfalls to avoid if the US wants to achieve another stellar performance in 2019."

2.39pm GMT

The US has "proved the doubters wrong" by growing faster than expected in the last quarter of 2018, says James Knightley, ING's chief international economist.

Here's his take:

The details show a partial slowdown in consumer spending growth (2.8% versus 3.5% in 3Q18), but it continues to make a strong contribution. In fact, given the equity market turmoil at the time and the poor official retail sales figure for December, this isn't a bad outcome at all.

Non-residential investment spending actually posted a decent performance, recording growth of 6.2% despite the concerns about what escalating trade tensions could mean in terms of supply chains and corporate profitability.

2.33pm GMT

Capital Economics fear that the US will slow in 2019, as the sugar rush from the White House tax cuts programme fades.

Paul Ashworth, their chief US economist, says:

Overall, GDP increased by 2.9% last year, up from 2.2% in 2017. But that acceleration is no surprise given the size of the fiscal stimulus introduced early last year. As the stimulus fades and the lagged impact of past monetary tightening continues to feed through, we expect GDP growth to slow to 2.2% this year and only 1.2% in 2020. Under those circumstances, we don't expect the Fed to hike rates again and we anticipate 75bp of rate cuts in 2020.

Government expenditures increased by 0.4%, but that gain was dragged down by a 5.6% decline in Federal non-defence expenditure, which could be related to the shutdown that began in late December.

2.25pm GMT

Slightly more positively, the US economy grew by 3.1% in Q4 2018 compared to Q4 2017.

Confusingly, that's a different figure than for 2018 growth [2.9%] as a whole (even though it sounds like it's measuring the same thing).

Real GDP increased 2.9 percent in 2018 (from the 2017 annual level to the 2018 annual level), compared with an increase of 2.2 percent in 2017....

During 2018 (measured from the fourth quarter of 2017 to the fourth quarter of 2018), real GDP increased 3.1 percent, compared with an increase of 2.5 percent during 2017.

The U.S. economy grew by 2.6% at the annual rate in the fourth quarter. For the year, real GDP rose by 2.9% in 2018, or by 3.1% from Q4:2017 to Q4:2018. As such, economic growth last year was the best since 2005, as expected, on a year-over-year basis. pic.twitter.com/qhbVBCIJ4y

The GDP discussion right now is about apples to apples, or apples to oranges...both numbers are "right," but they should be compared on apples to apples...

Year over year gdp was 2.9%. Q4/q4 was 3.1%. Think of it this way: yr/yr tells u the avg speed of the first 4 laps of a race vs the avg of the next four. Q4/q4 tells you how the speed of 8th lap compares to the speed of the fourth lap. Both are useful. Thx @actioneconomics.

1.55pm GMT

Back in December 2017, president Trump bullishly suggested the US economy could grow by "four, five, and maybe even six percent" per year eventually.

Now we know the US economy only grew by 2.9% last year. So, stronger growth -- like a China trade deal and North Korean denuclearisation -- are still on the White House 'To Do" list.

During the campaign, Trump pledged 4% annual GDP growth. The prediction was dismissed as unrealistic. When growth hit 4% in one quarter last year, Trump supporters claimed victory even though one quarter a one year.

Growth for the year was 2.9%. https://t.co/QeJG8XQrA6

1.50pm GMT

During 2018 as a whole the US economy grew by 2.9%, the Bureau of Economic Analysis says, up from 2.2% in 2017.

That means that Donald Trump has just fallen short of his goal of achieving 3% sustainable growth, something he pledged during his 2016 election campaign.

US GDP grew by +2.6% in Q4, roughly in line with expectations. As a result, US GDP growth for 2018 as a whole was +2.9%, as expected, up from +2.2% in 2017.

BREAKING: US GDP growth hit 2.9% in 2018, a strong pace but shy of Trump's 3% goal.

Q1 GDP: 2.2%
G2 GDP: 4.2%
G3 GDP: 3.4%
G4 GDP: 2.6%

The big q is can this pace continue? WH says yes. Most economists say no. #economy

1.42pm GMT

Putting GDP growth in perspective, via @CommerceGov: pic.twitter.com/Dl5zkKGwiv

1.41pm GMT

Consumer spending helped to drive US growth in the last quarter, rising by 2.8%.

Business spending on new equipment also boosted growth, rising by 6.2%. Firms also expanded their inventories a little, which is also positive for GDP.

Q4 real GDP better than expected at +2.6%, >+2.2% consensus, following 3.4% in Q3, w/ consumption +2.8% (< consensus), nonresidential business investment +6.2%, slower gov't spending, trade = minor drag, inventories mild +

1.34pm GMT

Newsflash: America's economy has slowed, but not by as much as feared.

US GDP expanded at an annual rate of 2.6% in the last quarter of 2018, official figures show. That's down from 3.4% annualised growth in July-September 2018.

BREAKING! The US economy grew 2.6% (annualized) in Q1, more than expected, YoY #GDP growth 3.1%. pic.twitter.com/JhudI6cRzX

1.10pm GMT

Here's Richard Partington on today's migration figures:

12.42pm GMT

Just in: India's growth rate has hit its lowest in over a year, in the latest sign that the world economy has cooled.

India's economic growth slows down. The #GDP grew by 6.6% during the October - December 2018 period. That's a sharp drop compared to the July - September quarter - when it had expanded by 7.1%. China's economy grew by 6.4% during the same period.

India's 6.6% GDP growth in the 4Q18, spot on my forecast. Slowdown is not quiet out of sync with what's observed elsewhere in Asia. But unlike some other Asian central banks the RBI's easing options are limited, unless it's for political reasons.

12.24pm GMT

The big economic news of the day comes at 1.30pm GMT, when US growth figures for October-December 2018 are released .

They'll probably show a sharp slowdown compared with Q3 (but still faster than the UK and the eurozone).

11.41am GMT

One more interesting chart from the ONS's migration report (which is online here)

11.03am GMT

The respected Migration Observatory at the University of Oxford points out that net EU migration has now fallen 70% since the EU referendum.

Madeleine Sumption, Director of the Migration Observatory, says Britain simply isn't as attractive to EU migrants than in 2016, for several reasons:

That may be because of Brexit-related political uncertainty, the falling value of the pound making UK wages less attractive, or simply the fact that job opportunities have improved in other EU countries.

EU net migration happened to be unusually high in the run-up to the referendum, so at least some of this decline would probably have happened anyway even without Brexit."

ONS has had a bit of trouble with their non-EU students data in recent years for various technical reasons, which raises the question whether this upward spike in study is 'real'. So it's useful to see that visa data DO confirm the upward trend in non-EU study. pic.twitter.com/TNZMFPadbD

10.45am GMT

The ONS also reports that more people are coming to the UK to study:

10.35am GMT

Here's Matthew Fell, the CBI's chief UK policy director, on the drop in EU migration:

Businesses can't succeed without access skills & labour, which is why it's so important the Govt delivers a post-Brexit immigration system which is both open & controlled. These figures confirm fewer EU workers are coming to the UK, exacerbating labour & skills shortages. https://t.co/shqNIlurI4

10.33am GMT

Stephen Clarke, Senior Economic Analyst at the Resolution Foundation, says EU workers are voting with their feet, and quitting the UK:

"While UK politicians are seemingly unable to provide any clarity on where Britain is heading post-Brexit, EU migrants are increasingly doing so - by leaving.

"EU migration is now at its lowest level in a decade - a fall that is being driven by fewer EU migrants coming to the UK for work. In contrast, migration from the rest of the world is close to a record high, though many of these migrants are coming to study rather than work.

"Post-Brexit Britain's migration system is still to be decided, and is years away from coming into effect. But many areas of the labour market - particularly firms in high-turnover sectors like hospitality who are reliant on the free movement of EU workers - are going to have to adjust to lower migration well before the new system is in place."

10.30am GMT

Sky News's Ed Conway has spotted that net migration from European countries to the UK is now lower than before the EU's major expansion in 2004:

Astonishing just how quickly net migration from the EU has collapsed since the referendum. Now down to the lowest level since 2002, by my reckoning. In other words BEFORE Poland joined the EU pic.twitter.com/kGRbjqygkc

10.13am GMT

Tej Parikh, Senior Economist at the Institute of Directors, says today's migration figures show that firms are struggling to hire workers in the face of Brexit uncertainty.

"With job vacancies at record highs, recruiting from abroad has never been more crucial for British businesses. Flexible and hassle-free access to international skillsets is part and parcel of having a globally competitive skills regime, so adjusting to the Government's post-Brexit immigration agenda, with its new restrictions, will present some challenges.

"Already, firms across the retail, hospitality and construction sectors are facing obstacles as some EU workers are returning home, while it's also becoming harder to attract labour from Europe amidst the uncertain political climate. Larger organisations have looked to hire from further afield to compensate, despite the additional paper work, but this can be harder for many resource-constrained SMEs.

10.11am GMT

The latest UK migration statistics are out, and they give a fascinating insight into the changes that are taking place since the Brexit vote.

Total migration was "broadly stable" in the 12 months to September 2018, with 283,00 more people arriving than leaving - slightly more than a year ago.

New ONS data:

- EU Net Migration at lowest since 2009. EU8 migrants leaving.

- Non-EU net migration at highest since 2004.

Inferring that:

- Tens of thousands' target still as stupid as day it was plucked out of air as policy.

- For EU citizens, UK less desirable.

9.45am GMT

Let's catch up with the flurry of UK corporate news.

9.18am GMT

Fiona Cincotta of www.cityindex.co.uk blames increased political tensions in Asia (Kashmir, North Korea...) for today's selloff:

An escalation of geopolitical tensions between India and Pakistan, to the worst levels since the 1971 war between the two nations has given investors another concern to add to their already long list.

Investors showed no signs of wanting to extend the recent rally in equities, with risk instead coming off the table and riskier assets such as equities being sold off. With the US - North Korean summit also about to begin and with nerves creeping in about how much distance the US and China still need to cover in order to secure a trade deal, investors are preferring to watch from the side-lines.

8.58am GMT

European stock markets are also nursing losses in early trading.

Concerns over China's slowdown, and disappointment that the US-North Korea summit broke up without a deal, has created a cloud of gloom over the City.

"US talks with North Korea have broken up without a deal. South Korean shares fell sharply as the meeting broke up, with Asian shares broadly in the red. I don't think this will ultimately have too much bearing on global indices in the longer term, but for now with hopes of a deal with China on trade not exactly fading, but certainly not rising, it's 0 from 2 for Trump this week and risk sentiment is suffering as a result.

The combination of the lack of progress with North Korea and China will drag on equities and we might have to wait for a new catalyst to renew the bullish start to the year.

8.45am GMT

Asian stock have been hit by China's weak factory data....and by the sudden break-up of the summit between Donald Trump and Kim Jung-un.

Hopes of a denuclearisation deal have been dashed, with Trump telling reporters that Kim had demanded all sanctions on North Korea were lifted. The US refused, as Kim wasn't making enough concessions on dismantling its nuclear facilities.

See if you can spot where the joint press conference was cancelled in Korea's stock index today pic.twitter.com/HSXQ62EkpX

On North Korea, Trump says: 'it wasn't a good thing to be signing anything'. Kim is 'quite a guy'. 'Sometimes you have to walk' #TrumpKimSummit

Breakdown of Trump-Kim summit in Hanoi highlights limits of "best buddies" diplomacy. Best interpretation is that it is Reykjavik pre-INF treaty; more likely, North Koreans simply not ready to give up their extensive nuclear programme. It's existential for them and Kim knows it

8.25am GMT

Commodity prices have been hit by the slump in Chinese exports, with copper and zinc both down around 0.6%.

8.22am GMT

Today's Chinese factory data really is gloomy:

More China gloom & doom data: #China February factory activity shrinks to 3y low, export orders worst in a decade. https://t.co/paSe6PGrXP pic.twitter.com/Fbfvmy0GBC

8.20am GMT

China's economic slowdown is also hurting the UK.

British car exports to China plunged by over 70% in January compared to a year earlier, which (not surprisingly) is the biggest drop ever recorded. It confirms earlier reports of slowing demand for vehicles among Chinese consumers.

8.12am GMT

Iris Pang, Greater China economist at ING, fears that China's factories will keep shrinking, unless Beijing and Washington reach a trade agreement.

"Unless the trade war truly turns into an extended truce, the weakening trend may not end quickly.

As such we expect March's PMI to fall, too."

7.52am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Chinese factories have suffering the swiftest drop in export orders since the financial crisis a decade ago, fuelling concerns that the country's economy has weakened.

China Feb NBS Mfg PMI -0.3 to 49.2, 3rd straight months below 50 and lowest level since March 2016.
New Export Orders 45.2, 9 months drop in a row and lowest level in 10 years! pic.twitter.com/CTvzEEqZm2

A tale of two economies! #China's Manufacturing #PMI remains below 50 in February, while the Non-Manufacturing PMI is at a healthy 54.3. pic.twitter.com/zMdXZUUC9t

As if on cue more weak data poured out of China, pulling the Shanghai composite index lower. Factory activity in China contracted for a third straight month in February as export orders fell to the lowest level since the global crisis.

Further evidence of a slowdown in China hit risk sentiment, The realisation that there is still considerable work to be done for the US and China to reach a trade agreement, plus further evidence of economic activity in China slowing is leaving little for traders to cheer on Thursday.

Bracing myself for a deluge of UK corporate results this morning. And that's before any unscheduled news

arghhhhhhh https://t.co/FuoWymNnZc

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