Photo by White House

JAKARTA (TheInsiderStories) – The United States (US) partial shutdown, which began on Dec. 22, is expected to reduce fourth quarter (4Q) GDP growth by around 0.1 percentage points when calculating the impact of the reduction in services provided by the federal government. But the estimate is far from the reality.

According to the latest report US’ Bureau of Economic Analysis that GDP grew by 3.1 percent from the 4Q of 2017 to the 4Q of 2018. This marked the fastest fourth quarter to fourth quarter growth since 2005.

2018 was the second year in a row that the economy exceeded market expectations. Economic output was also US$280 billion larger than it would have been.

President Trump’ policies of tax cuts, deregulation, and trade reform have generated the a rising economy. So far, more than 5.3 million jobs have been created since his election.

The unemployment rate has remained at or below four percent for the past 11 months. Job growth in January was more than 300,000, far exceeding expectations, and unemployment stands at 4 percent.

The Bureau reported on Thursday (02/28), US’ GDP grew 2.6 percent annually in the last quarter of 2018, beating market expectations of 2.4 percent, according to preliminary estimates. By annual basis, the US economy rose 2.9 percent in 2018, above 2.2 percent in 2017, and the highest growth rate since 2015.

Gross private domestic investment, which is only 17 percent of GDP at the beginning of the year, accounted for 36 percent of real GDP growth in 2018. Real investment in intellectual property products rose 10.8 percent, and grew at the fastest pace since 1999.

Fixed investment contributed 0.69 percentage points to growth and rose 3.9 percent from 1.1 percent in 3Q. Investment rose faster for equipment 6.7 percent compared to 3.4 percent,, and intellectual property products 13.1 percent compared to 5.6 percent. Continued to decline structures -4.2 percent compared to -3, 4 percent and housing investment -3.5 percent compared to -3.6 percent.

Meanwhile, personal consumption expenditure (PCE) contributed 1.92 percentage points for growth (2.37 percent in Q3) and rose 2.8 percent (3.5 percent in Q3). The PCE price index rose 2.0 percent in 2018, up from 1.8 percent in 2017 and 1.1 percent in 2016.

In addition, government spending and investment added 0.07 percentage points to growth, below 0.44 percentage points in Q3. This increased 0.4 percent, lower than 2.6 percent in Q3. Meanwhile, net trade reduced 0.22 percentage points to growth, compared with 0.31 points in 2017.

Consumption growth slowed slightly to 2.8 percent in Q4, down from 3.5 percent in Q3 and 3.8 percent in Q4, and contributed 1.9 points to GDP growth. By 2018, consumption growth is 2.6 percent, up from 2.5 percent in 2017.

Exports rose 1.6 percent in Q4, while imports rose 2.7 percent, slightly widening the trade deficit and shaving 0.2 points of GDP growth. Exports and imports are very volatile this year due to adjustments to the imposition of new tariffs. By 2018, US exports rose 3.9 percent in 2018, but larger imports rose 4.6 percent, widening the trade deficit.

So far, US factory orders edged up 0.1 percent month to month (MoM) in December, up 2.4 percent compared to a year ago. For 4Q overall, orders fell -1.5 percent quarter on quarter (QoQ), which still rose 4.4 percent from a year earlier.

Growth in business investment bounced back in 4Q to 6.2 percent, up from the real slowdown of 2.5 percent in 3Q, and contributed 0.8 points to GDP growth. Meanwhile, in 2018, business investment growth was 7.0 percent, up from 5.3 percent in 2017 and 0.5 percent warm in 2016.

Growth in government spending slowed to just 0.4 percent in Q4, slightly adding to GDP growth. Defense spending rose 6.9 percent, but was offset by a 5.6 percent decline in federal non-defense spending, possibly due to government closure.

State and local spending also fell 0.3 percent. But, overall in 2018, government spending rose 1.5 percent, largely driven by a 3.4 percent increase in federal defense spending.

The PCE price index rose 1.5 percent in 4Q, down from 1.6 percent in Q3. Core PCE (excluding food and energy) rose 1.7 percent in Q4, up from 1.6 percent in 3Q. Oil prices faltered helped, but inflation remained low, giving space for the Fed to be patient in raising interest rates.

Written by Daniel Deha, Email: