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U.S. economic growth revised down slightly for 2018 to 2.9% — still strong but slowing

U.S. economic growth revised down slightly for 2018 to 2.9% — still strong but slowing
President Trump's White House is predicting 3.2% growth this year, but most independent forecasters expect it to fall in the 2% to 2.5% range. (Manuel Balce Ceneta / Associated Press)

The U.S. economy grew 2.2% in the final quarter of last year, the Commerce Department said Thursday, less than the 2.6% the government initially estimated and another sign of a slowdown.

President Trump, however, has focused on how fast the economy grew in 2018, which was widely expected to be a strong year after the GOP tax cuts and infusion of more government spending. Trump contends the economy is taking off, whereas most economists say growth peaked last year.

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Trump has been touting 3.1% economic growth in 2018. But officially, the Commerce Department said Thursday, the economy grew 2.9% last year.

There are two main ways to calculate the growth of gross domestic product. The White House method is to calculate the change from the fourth quarter of 2017 to the fourth quarter of 2018, which is preferred by many economists, including the Federal Reserve. The Commerce Department reported Friday that measure of growth was revised down to 3%.

The official government GDP statistic, however, is calculated by comparing how many goods and services were produced in 2018 ($18.6 trillion) with 2017 output ($18.1 trillion). That change is 2.9%.

The two measures are typically quite close, and few people beyond data wonks notice the difference. But this report came under more scrutiny because Trump promised 3% growth every year for the next decade. Americans are asking: Did he achieve his goal?

By the official government statistic, Trump did not. But most economists are willing to say he did because they think it is valid to look at the 3% calculation.

More important, perhaps, is putting growth in historical context. The 2.9% measure is the best since 2015, a robust but not unprecedented rate during this recovery.

Trump has been pointing to the 3% measure as the “best in 14 years.” He says that because it is the best change from fourth quarter to fourth quarter during that time frame, but growth also hit 3% or better several times under President Obama, including during the first quarter of 2015, when it grew 3.8%.

Economists are not focused on this political debate. The main takeaway for most experts is that growth is showing clear signs of slowing. The economy grew 4.2% in the second quarter of 2018, 3.4% in the third quarter and 2.2% in the final quarter.

Both consumers and businesses cooled in the final quarter of the year, and that trend is expected to continue in early 2019.

The White House is predicting 3.2% growth this year, but most independent forecasters expect it to fall within the range of 2% to 2.5%. The first quarter is expected to be particularly sluggish because of bad weather in parts of the country and the partial government shutdown.

“In 2018, momentum accelerated. In 2019, we will see momentum decelerating. The inflection point was really the fourth quarter last year,” said Gregory Daco, U.S. economist at Oxford Economics. “This does not mean we’re headed for a recession. It just means growth will slow to about 2% this year and next.”

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