Today the BEA released its second (and final, thanks to the government shutdown earlier this year) estimate of fourth quarter 2018 GDP. Analysts were expecting a downward revision from 2.6% QoQ SAAR to 2.3% QoQ SAAR, but the actual impact was slightly more at 2.2% QoQ SAAR. Notably, every category except trade saw downward revisions, with broadly lower estimates of consumption growth across both durable and non-durable goods. Services was mostly unchanged. Fixed investment was also weaker, with housing continuing its very soft run with an 8th negative contribution in the last 11 quarters, while intellectual property product investment weighed on the non-residential side. Inventory investment was also slower at +11 bps contribution. Trade was a small positive, mostly thanks to weaker goods imports. Finally, government contributions to growth were revised lower. Notably the federal contribution was the weakest since Q2 ’17 while state and local governments weighed on growth the most since Q1 ’14.
Back in February of 2018, we showed the chart below in a Chart of the Day (link), which detailed the degree of fiscal easing relative to GDP by fiscal year. Fiscal years run October to September, so Fiscal Year 2018 ended last October and the current fiscal year is one-third finished. In other words, we are right in the heart of the fiscal stimulus unleashed by the combination of tax cuts and eased budget/spending caps at the end of 2017 and in early 2018.
Despite the fiscal stimulus (mostly in the form of tax cuts, which in the near term tend to boost growth less than new outlays like the spending caps that were eased by Congress early last year), growth has only barely made it to 3%. As shown in the chart below, there doesn’t appear to have been a change in the trend for GDP, which is somewhere around 2% annualized. If fiscal stimulus totaling more than 3% of GDP in its first two years can’t push growth materially higher, that’s a pretty strong indication that there are very powerful factors keeping growth at a relatively slow 2% trend.