Slower, but not slow
The fourth-quarter slowdown wasn’t as bad as some forecasters had expected. Consumer spending, the bedrock of the economy, rose at a 2.6 percent rate — slower than in the middle of the year, but hardly a collapse. Exports, which slumped in the third quarter, rebounded in the fourth, suggesting that the cooling global economy isn’t yet dragging down American exporters. And businesses stepped up their investment in equipment, software and research, a sign that they are still betting on the future.
Still, uncertainty about the direction of the economy has made some businesses more cautious. George Whittier, who oversees operations for the Morey Corporation, a manufacturer outside Chicago, said business was strong in 2018 but began to slow at the end of the year. He shrugged off weakness in December as a seasonal blip. But then January was softer, and February was softer still.
Morey, which makes electronic components for cars, medical devices and other uses, has been hit by Mr. Trump’s tariffs, which raised prices on imported parts from China. At first, the impact was small, but it has grown as suppliers draw down inventories and are forced to import more.
“As each month has gone by, it has seemed like more and more components have been affected,” Mr. Whittier said.
For now, Mr. Whittier remains optimistic that the trade tensions will be resolved and 2019 will prove to be a good year. But he is taking a wait-and-see approach when it comes to making big investments.
The stimulus effects are fading
Thursday’s report left little doubt that the midyear surge in growth has dissipated, just as many economists predicted at the time. Tax cuts and federal spending increases provided a temporary lift, but that was offset by higher interest rates, trade tensions and a slowing global economy. And the effects of the stimulus will fade further in 2019.
Residential investment, a proxy for housing construction, fell for the fourth straight quarter, as higher interest rates and declining affordability weighed on construction and sales. Retail sales dropped unexpectedly in December, which could be a sign that consumers are starting to pull back. And growth in the fourth quarter was driven in part by companies building up inventories, which could reverse in 2019.
