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Fourth-quarter GDP revised down; profits weak

Washington

THE US economy slowed more than initially thought in the fourth quarter, keeping growth in 2018 below the Trump administration's 3 per cent annual target, and corporate profits failed to rise for the first time in more than two years.

Gross domestic product increased at a 2.2 per cent annualised rate, the Commerce Department said on Thursday in its third reading of fourth-quarter GDP growth. That was down from the 2.6 per cent pace estimated in February.

The economy grew at a 3.4 per cent pace in the third quarter. The expansion will be the longest on record in July.

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The revisions to the fourth- quarter GDP reading reflected markdowns to consumer and business spending, as well as government outlays and investment in homebuilding.

For all of 2018, the economy grew 2.9 per cent as previously reported, despite the White House's fiscal stimulus of US$1.5 trillion in tax cuts and more government spending. Growth last year was the strongest since 2015 and was an acceleration from the 2.2 per cent logged in 2017.

Compared to the fourth quarter of 2017, the economy expanded 3.0 per cent, revised down from the 3.1 per cent reported last month.

President Donald Trump has highlighted the year-on-year growth figure as proof that fiscal stimulus, which has contributed to a swelling of the federal government deficit, has put the economy on a sustainable path of strong growth.

Mr Trump likes to showcase the economy as one of the biggest achievements of his term, declaring last July that his administration had "accomplished an economic turnaround of historic proportions".

On the campaign trail, Mr Trump boasted that he could boost annual GDP growth to 4 per cent, a goal analysts always said was unrealistic given low productivity, among other factors.

Economists polled by Reuters had forecast GDP in the fourth quarter being revised down to 2.4 per cent.

There are signs that the slowdown in growth persisted early in the first quarter, with retail sales rising modestly and manufacturing production and homebuilding tepid.

That was underscored by weak profits in the fourth quarter.

After tax corporate profits were unchanged for the first time since the third quarter of 2016, after growing at a 3.5 per cent rate in the third quarter. A profit measure that corresponds to S&P 500 profits fell US$34.2 billion in the fourth quarter.

The economy is facing headwinds from the fading stimulus, slowing global growth, Washington's trade war with China and uncertainty over Britain's departure from the European Union.

These contributed to the Federal Reserve's decision last week to bring its three-year campaign to tighten monetary policy to an abrupt end. The US central bank abandoned projections for any interest rate hikes this year after increasing borrowing costs four times in 2018.

Growth in consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 2.5 per cent rate in the fourth quarter instead of the previously reported 2.8 per cent pace. Consumer spending remains underpinned by a strong labour market.

Growth in business spending on equipment was revised down to a 6.6 per cent pace from a 6.7 per cent rate. Investment in intellectual products was lowered to a 10.7 per cent rate from the 13.1 per cent pace reported in February.

Investment in residential construction was revised to show it contracting at a 4.7 per cent rate instead of at a 3.5 per cent rate, marking the fourth straight quarterly decline.

Government investment fell at a 0.4 per cent rate, instead of growing at a 0.4 per cent pace as previously reported.

But exports were revised up to show them rising at a 1.8 per cent pace instead of the 1.6 per cent rate reported last month.

Imports were revised down, leading to a smaller trade deficit that cut one-tenth of a percentage point from fourth-quarter GDP growth.

The trade deficit was previously estimated to have subtracted 0.22 percentage point from output. Inventories increased at a US$96.8 billion rate in the fourth quarter instead of the US$97.1 billion reported last month.

Inventory investment added one-tenth of a percentage point to GDP growth last quarter as estimated last in February. REUTERS