Just when it looked like the US economy was poised to take off, news of a revised growth forecast has some investors scratching their heads. The Commerce Department recently announced that it had revised its estimates of the US gross domestic product (GDP) for the second quarter of 2020, lowering it from an initial estimate of 4.2% to just 2.1%. This comes as the government reported that consumer spending had slowed in the same period, rising by only 1.9%. This is well below the original estimated growth rate of 3.4%, indicating that consumers are not as confident about their economic future as initially thought. In this article, we’ll explore what this revision means for US economic growth and what it could mean for consumers going forward.
The U.S. economy grew at a slower pace than initially estimated in the fourth quarter
The U.S. economy grew at a slower pace than initially estimated in the fourth quarter as consumer spending slowed and businesses invested less in inventories, the Commerce Department said on Wednesday.
Gross domestic product expanded at a 2.6 percent annual rate instead of the 3.2 percent pace reported last month, the government said in its third estimate of fourth-quarter GDP growth. The economy grew 2.9 percent in 2017, an acceleration from the 1.5 percent pace registered in 2016.
The downward revision to fourth-quarter growth reflected smaller gains in consumer spending and business investment than previously estimated. Consumer spending, which accounts for more than two-thirds of economic activity, increased at a 2.5 percent pace in the fourth quarter instead of the 3.8 percent rate reported last month
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose at a slower pace than initially estimated
consumer spending, which accounts for more than two-thirds of us economic activity, rose at a slower pace than initially estimated. the commerce department said on thursday that consumer spending increased at an annual rate of 1.0 percent in the fourth quarter, down from an initial estimate of 1.1 percent growth. while consumer spending picked up slightly from the third quarter’s 0.5 percent pace, it was still the weakest since the first quarter of 2014 and reflected subdued wage growth and high inflation.
Business investment also declined in the fourth quarter
Growth in business investment slowed sharply in the fourth quarter, contributing to the overall slowdown in economic growth. Businesses invested less in equipment and software, and spending on structures also declined. This is likely due to businesses’ concerns about the outlook for the economy and slowing global growth.
How the lower economic growth will impact consumers
The US economy grew at a slower pace than initially thought in the first quarter as consumer spending unexpectedly stalled, reviving fears that the Trump administration’s policies could derail the nation’s expansion.
The Commerce Department said on Wednesday that the economy expanded at a 0.7 percent annualized rate in the first quarter, instead of the previously reported 1.2 percent pace. Growth was also revised lower for the fourth quarter of last year.
The downward revisions to growth underscore how sensitive the economy is to changes in consumer spending, which accounts for more than two-thirds of economic activity.
U.S. consumers cut back on spending on automobiles, clothing and other big-ticket items in early 2017, leading to the weakest quarterly growth in nearly three years. The slowdown could be temporary as households benefit from an improving job market and rising wages.
But it also underscores how vulnerable the economy is to any disruption in consumer spending, which has been one of the key pillars supporting its expansion since mid-2009 following the Great Recession.
What this means for the future of the US economy
The US economy grew at a slower pace than previously estimated in the first quarter of 2019, as consumer spending growth cooled and businesses ramped up investment in inventory.
The Commerce Department said on Wednesday that the US economy expanded at a 3.1 percent annualized rate in the first three months of the year, revising down its previous estimate of 3.2 percent growth.
While the revised growth figure is still solid, it is below the 4.2 percent pace clocked in the fourth quarter of last year and marks a slowdown from 2018, when growth averaged 2.9 percent.
economists had expected first-quarter growth to be unrevised at 3.2 percent.
The main driver of the revision was weaker consumer spending, which increased at a 1.3 percent annualized rate instead of the 1.9 percent pace reported last month. That is the weakest pace of consumer spending since early 2017 and followed a robust 4 percent rise in the fourth quarter.
Businesses accumulated $58.8 billion worth of inventory in the first quarter, up from $57.6 billion in the prior period. That helped to boost GDP growth by 0.4 percentage point, offsetting some of the drag from consumer spending and government expenditure
