U.S. economy slowed at year’s end, once again unable to sustain 3% growth

John Beghin, of the Long Beach Container Terminal at the Port of Long Beach, watches a container ship being unloaded from a nearby crane in July.
(Rick Loomis / Los Angeles Times)

President Trump still hasn’t cracked the 3% solution for the U.S. economy.

Despite frequently boasting that his policies have caused growth to take off, government data released Friday showed the economy slowed at the end of last year after expanding at a 3% annual pace from April through September.

Once again, in a trend that has plagued the recovery from the Great Recession, the nation was unable to sustain 3% growth for very long.

The 2.6% figure for the October-through-December period reported by the Commerce Department — the first of three estimates in the coming weeks — was down from 3.2% in the previous quarter and below analyst expectations.

Still, it marked another solid quarter in one of the longest economic expansions in U.S. history.


“It would have been great to have seen another 3% quarter of growth,” said Sam Bullard, senior economist at Wells Fargo Securities.

But, he continued, “the underlying fundamentals and trends we’re seeing with consumer spending and business investment still are very strong as 2017 came to an end, and we anticipate that positive momentum to continue in 2018.”

Total economic output, also known as gross domestic product, had expanded at more than a 3% annual rate for two straight quarters before the fourth quarter. U.S. economic growth hasn’t exceeded 3% in three consecutive quarters since 2004-05.

“It’s tough, given where we are, to get to 3%” sustained growth, said Gus Faucher, chief economist at PNC Financial Services Group. With the unemployment rate at a 17-year low and an aging population, achieving 3% growth for more than a couple of consecutive quarters is unlikely, he said.

In the wake of the second- and third-quarter growth, Trump boasted that his administration’s policies had reversed the sluggish growth of about 2% that had marked the years since the Great Recession ended in 2009.

“After years of stagnation, the United States is once again experiencing strong economic growth,” Trump said Friday, shortly before the Commerce Department report was released. In a speech to the World Economic Forum in Davos, Switzerland, Trump declared that “America is open for business, and we are competitive once again.”

While he touted the continued strong job growth and soaring stock market, Trump did not mention the pace of U.S. economic growth in his address to the corporate and political elite gathered in Davos.

But last month, as the Republican tax cut plan neared enactment, he said the U.S. was on the way to much faster growth.

“The economy now has hit 3%,” Trump told reporters Dec. 16. “Nobody thought it would be anywhere close. I think we could go to 4, 5 or even 6%, ultimately.”

Economists said that it takes months for a new administration to affect the economy and that much of 2017’s performance, including continued strong job growth, was attributed to former President Obama’s policies.

But Trump has argued that his election in November 2016 began boosting the economy even before he took office, as business and consumer confidence rose in anticipation of his pro-growth policies. Those policies include reducing regulations and pushing through a tax bill at the end of last year centered on large corporate tax cuts.

In the Davos speech, Trump cited job creation figures dating to his election. But in a CNBC interview, Trump said Thursday the clock should not start on his economic growth record until the second quarter of last year. The first quarter, in which growth was just 1.2%, was “the Obama quarter.”

The Commerce Department said the economy expanded 2.3% for all of 2017. That was a significant improvement over the previous year’s 1.5% growth. But it was below the 2.9% recorded under Obama in 2015.

Trump and Republicans have noted that Obama’s administration was the first in U.S. history that never produced at least one year of 3% growth.

Although it’s true that under Obama the U.S. economy never had a calendar year of 3% growth as it dealt with the aftermath of the Great Recession, his administration did preside over 12-month periods in which growth exceeded that level. The first of those periods was from October 2009 through September 2010. Then there were two overlapping periods — from April 2014 through March 2015 and from July 2014 through June 2015.

The tax cuts enacted by Congress last month are expected to boost growth this year, but not above 3%. The International Monetary Fund this week projected that the U.S. economy would expand 2.7% this year and 2.5% in 2019.

Economic growth stumbled a bit in the fourth quarter as the biggest increase in consumer spending in more than a year was offset by a large jump in imports and a sharp drop in business inventories.

Aside from the decline in inventories, measures of business investment were strong.

“Despite the weaker-than-expected performance during the fourth quarter, the overall tone of the economy is very healthy,” said Sung Won Sohn, an economist at Cal State Channel Islands. “Consumers were on a spending spree during the quarter, buying everything from cars to iPhones.”

Last month, Federal Reserve policymakers forecast the U.S. economy would grow 2.5% this year but decline to 2.1% in 2019.

Bullard, of Wells Fargo Securities, said he’s expecting 2018 growth right at 3%.

“We feel comfortable that the momentum we’re seeing with consumer and business investment and the anticipated outcomes from the tax reform package that was just passed will lead us to that stronger rate of growth this year than last year,” he said.

Faucher is forecasting 2.7% growth next year, with a boost from the tax cuts.

“Things now look pretty similar to how they looked last year at this time or two or three years ago at this time,” he said.

Twitter: @JimPuzzanghera


12:20 p.m.: This article was updated with comments from Gus Faucher of PNC Financial Services Group and additional details.

8:45 a.m.: This article was updated with comments from President Trump, Sam Bullard of Wells Fargo Securities and Sung Won Sohn of Cal State Channel Islands.

This article was originally published at 6:15 a.m.