U.S. economic activity rose at a pace of 2.1% in the last three months of 2019, coming in ahead of consensus expectations. Personal consumption, however, slowed more than anticipated.
Here were the main metrics from the Bureau of Economic Analysis’s advanced fourth-quarter gross domestic product report, compared to consensus expectations compiled by Bloomberg:
4Q GDP annualized quarter over quarter: +2.1% vs. +2.0% expected and +2.1% in 3Q
Personal consumption: +1.8% vs. +2.0% expected and +3.2% in 3Q
Core personal consumption expenditures, quarter over quarter: +1.3% vs. +1.6% expected and +2.1% in 3Q
For the 12 months through the fourth quarter of 2019, U.S. GDP grew at a pace of 2.3%. This marked a deceleration from the 2.5% pace of gains seen in the 12 months through the end of 2018.
Throughout the first three quarters of 2019, the strength of the U.S. consumer helped propel economic activity forward, even as other areas including business fixed investment lagged. At the end of last year, personal consumption rose by 1.8%, representing the slowest rise in three quarters. Personal consumption comprises about two-thirds of U.S. economy activity.
Heading into the fourth-quarter report, most economists anticipated consumer activity would remain firm, but step back from its thumping pace of growth earlier in the year. The Federal Reserve, in its monetary policy statement released Wednesday afternoon, characterized household spending as growing at a “moderate pace” pace, after previously describing spending as “strong.”
“We aren’t worried by the slowdown in consumption from the 3.9% average in Q2/3; that was not sustainable and a correction was inevitable,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in an email. “We look for a return to trend, at about 2-3/4%, in Q1.”
Fixed investment returned to modest growth at the end of last year, rising 0.1% over the prior period in the fourth quarter of 2019. Within this, however, nonresidential fixed investment was still negative, falling 1.5% in the fourth quarter. Business fixed investment had been negative in each of the second and third quarters of last year, raising concerns that economic and geopolitical uncertainty was weighing on businesses’ willingness to spend. Overall gross private domestic investment fell 6.1% in the fourth-quarter, steepening after a 1% decline in the prior quarter.
Residential investment, while just a small portion of overall U.S. GDP, made a positive contribution to growth for a second consecutive quarter. Gains in this area were expected, with low interest rates helping boost mortgage applications and support a broad-based rebound in the housing market last year.
Trade also made a positive contribution to fourth-quarter GDP, with the trade deficit having narrowed in November to the lowest level since President Donald Trump took office. This had been driven in large part by a decline in imports.
Net exports contributed a surging 1.48 percentage points to fourth-quarter GDP, reflecting a 1.5% rise in exports and 8.7% drop in imports. However, these also drove a decrease in private inventories, with businesses exhausting materials in their warehouses as imports slumped.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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