Trump’s 3% Growth Feat in 2018 Undone by Annual Data Revisions

July 26, 2019, 12:48 PM UTC

President Donald Trump failed to achieve his much-ballyhooed 3% target for economic growth in 2018 after all.

Updated government figures show that gross domestic product expanded 2.5% on a fourth-quarter-over-fourth-quarter basis last year. That compares with a previous estimate of 3% and an upwardly revised 2.8% in 2017, the first year of Trump’s presidency.

Behind the 2018 markdown: Slower growth of business investment and exports, along with a greater output in the fourth quarter of 2017 that made the comparison less favorable.

Data for the second quarter of 2019, also released Friday, showed the economy expanded at a 2.1% annualized pace — above than the median projection — following a 3.1% reading in the prior three months. GDP grew 2.3% in the second quarter from a year earlier, the slowest in two years.

The new data call into question Trump’s claim that he’s lifting growth to 3%-plus from 2% through a mixture of tax cuts, deregulation and a pro-America trade policy. GDP gains in the first two years of his presidency, though, did top the expansion’s 2.3% average.

Other highlights of the annual GDP revisions — which cover data back to 2014 — include a sharp upward adjustment in the personal savings rate last year and the adoption of new quality-adjusted price calculations for cellphones that exhibit steeper declines than previous figures.

The latest data from the Commerce Department’s Bureau of Economic Analysis also show that the economy ended 2018 on a much weaker footing than thought.

Growth in the final three months of 2018 is now pegged at an annualized 1.1%, half the previous estimate and the slowest pace in three years, as consumer spending downshifted significantly.

Corporate Profits

Corporations also fared poorly in the final three months of the year as their profits tumbled $18.6 billion on a seasonally adjusted annualized basis from the previous quarter. That’s close to double the previously estimated drop.

The steep slowdown in growth at the end of 2018 could provide fodder for Trump in his criticism of the Federal Reserve for raising interest rates, including a hike in December.

Faced with a sluggish global economy and elevated trade tensions, the Fed is widely expected by investors to cut borrowing costs next week for the first time in more than a decade.

As economic growth slowed throughout 2018, Americans socked away more money. The personal savings rate last year was 7.7% — up from a previous estimate of 6.7% — after 7% in 2017, the revised figures show.

Savings were boosted by bigger-than-previously-thought income from interest payments and dividends paid to investors. That suggests that wealthier individuals were the main beneficiaries.

The annual revision also reflects work that the BEA did with the Fed to improve the agency’s measurement of quality-adjusted cell phone prices.

Prices for cellular phone services are now seen as having fallen 26.7% from the fourth quarter of 2014 through the first quarter of this year. That compares with a 17.4% drop under the old calculation.

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