United States – solid economic growth in the last quarter of 2019

According to data released from the Bureau of Economic Analysis on January 30, the economy fared quite well in the fourth quarter of last year, with GDP growth at 2,1 % (annualized), the same rate as the 2,1% expansion registered in the third quarter.

Private consumption was still solid (+1,8 % annualized), but less strong than in previous quarters. In addition, the rebound in residential investment continued. Business fixed investment, however, contracted at a similar rate as in previous quarters. Economic growth was supported by government consumption that expanded at a faster rate than in the third quarter. The evolution of international trade was still subdued. Exports of goods and services did not really recover and only slightly expanded. The evolution of imports of goods and services even contracted.

For 2020, one may expect a similar growth rate as in the fourth quarter of 2019. The U.S. and China signed a first limited trade agreement in January. Tariffs on Chinese imports remain high overall with little signs that they will be either lowered or raised before the presidential elections in November. The Federal Reserve has signaled that it will keep its interest rates constant if the economy continues its solid expansion. The unemployment rate is low at 3,5 in December and job growth is still robust, although the improvements in the labor market are somewhat less dynamic than in previous years. My reading of the forecasts by economists implies is that most expect GDP growth to lie between 1,6 and 2,2 % in 2020. Personally, I project GDP to expand by 2,1% in 2020. Inflation remains below 2% and the unemployment rate will be at 3,4%. At the moment, it is too early to assess the economic consequences of the coronavirus. Obviously, economic growth may be considerably reduced under a serious scenario.

February 3, 2020

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