WASHINGTON — The U.S. economy expanded at a 2.9 percent pace last year, the Commerce Department reported Thursday, a strong rate but just shy of President Trump’s goal of 3 percent.
Last year’s growth marked the fastest gain for the economy since 2015. The economy received a big boost from the largest corporate tax cut in U.S. history that went into effect last year, as well as additional government spending on the military and domestic programs. But that stimulus is widely expected to wear off later this year, causing growth to slow somewhat in 2019.
Growth in the final quarter of last year was 2.6 percent, above forecasts but below the 3.4 percent pace in the third quarter and 4.2 percent pace in the second quarter.
“Last year was likely the best year of this business cycle,” said Ellen Zentner, chief economist at Morgan Stanley. “We stimulated the heck out of the economy last year and that stimulus will fade this year.”
Trump and his top officials have repeatedly said they can achieve at least 3 percent annual growth for the next decade with the president even claiming it “could go to 4, 5, and maybe even 6 percent” as Republicans put the final touches on the tax cut bill in late 2017.
The vast majority of economists predict growth will be lower this year. The Federal Reserve is currently predicting 2.3 percent growth for 2019. Fed vice chair Richard Clarida said Thursday that he is likely to lower his forecast again as headwinds overseas in Europe and China could drag down growth at home.
“While my baseline outlook for growth, employment, and inflation is a positive one, a number of crosscurrents that are buffeting the economy bear careful scrutiny,” Clarida said, noting that some recent economic data has been disappointing.
The Commerce Department had to delay this report because of the partial government shutdown that furloughed many employees who work on key economic data collection and calculation.
Consumer spending continues to power the economy, with Americans opening their wallets on a wide range of purchases. Business investment also picked up in the final quarter last year, a sign that companies are still hiring and investing because they do not foresee a recession on the horizon.
There were especially strong gains in intellectual property and equipment purchases, but spending on residential homes declined 3.5 percent. The home building industry has continued to struggle with rising interest rates dissuading buyers and higher costs for some materials because of Trump’s tariffs.
Trade was a drag on growth at the end of last year as imports heavily exceeded exports. Americans brought more foreign products than they sold.
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