2018 US GDP Growth Highest Since 2005

The U.S. grew its gross domestic product by 2.6 percent in the fourth quarter of 2018, slightly better than consensus forecasts but well below the growth rate of the prior two quarters.

What Happened

On Thursday morning, the Commerce Department said U.S. GDP was up 2.6 percent in the fourth quarter, well above consensus estimates of 2.2 percent but down from 3.4-percent growth in the third quarter. The growth was surprisingly strong given a government shutdown, a sliding stock market, an ongoing trade war with China and another December rate hike from the Federal Reserve.

Why It’s Important

The late-2018 stock market weakness was driven in part due to concerns that a number of economic headwinds would ultimately result in a 2019 recession, or two consecutive quarters of negative GDP growth. The fourth-quarter number suggests the economy isn’t as weak as some had feared.

U.S. GDP growth jumped from 2.2 percent in the first quarter of 2018 to 4.2 percent in the second quarter before falling to 3.4 percent and 2.6 percent, respectively, in the last two quarters. Overall, the economy grew by 2.9 percent in 2018, just short of President Donald Trump’s goal of 3-percent growth.

“I’m going to say 3-percent [GDP growth] for 2018, 3 percent for 2019 and 3 percent for as far as the eye can see,” National Economic Council Director Larry Kudlow said on CNBC Thursday.

Kudlow also said the U.S. and China are headed for a “remarkable, historic deal” after trade talks made “terrific” progress last week.

The 2.9-percent economic growth rate is the strongest annual GDP growth rate in the U.S. since the economy grew by 3.1 percent back in 2005.

What’s Next

Investors will be watching to see if GDP growth continues to fall in 2019 and whether it could eventually dip into negative territory. At this point, economists are not anticipating an imminent recession. GDP growth is expected to slow to just 2.4 percent in 2019, according to the St. Louis Fed.

The SPDR S&P 500 ETF Trust SPY was down 0.1 percent at the time of publication Thursday.

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