WASHINGTON -- The U.S. economy turned in a solid performance in 2018, boosted in part by tax cuts and higher government spending. But growth slowed by year's end, and most economists envision a weaker outlook for the coming months and perhaps years.
The nation's gross domestic product, the broadest gauge of economic health, expanded at a 2.6 percent annual rate in the October-December period, the government said Thursday. That was down from a 3.4 percent rate in the July-September period and a sizzling 4.2 percent pace from April through June. During those months, the economy benefited from tax cuts and from higher government spending, the gains from which are thought to be fading.
For 2018 as a whole, GDP growth amounted to 2.9 percent, the government said, the best showing since 2015. It was just below the 3 percent pace the administration has said it can maintain consistently. By contrast, most economists foresee slower growth ahead. For the current January-March quarter, many analysts say they think growth could slow to a 2 percent annual rate or less.
"I think the economy will be steadily throttling back over the next two years," said Mark Zandi, chief economist at Moody's Analytics.
The economy's pace of expansion last quarter reflected a slowdown in consumer spending and the start of a 35-day partial shutdown of the government, which subtracted an estimated 0.1 percentage point from growth. That weakness was offset somewhat by a gain in business investment and less of a drag from trade.
The Federal Reserve is currently predicting 2.3 percent growth for 2019. Fed Vice Chairman Richard Clarida said Thursday morning that he is likely to lower his forecast again as head winds overseas in Europe and China are likely to slow U.S. growth.
"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 have been disappointing.
The $1.5 trillion tax cut that President Donald Trump pushed through Congress in late 2017 and billions of extra dollars in government spending that Congress added for military and domestic programs helped accelerate the economy last year.
In the view of most economists, though, 2018 may turn out to have been the economy's high point for some time. Many are forecasting that growth this year will slow to around 2.2 percent and to weaken further in 2020.
Some analysts say they think the economy could even dip into recession next year as the support from the tax cuts fades and the global economy sputters.
Zandi has forecast growth of 2.5 percent this year and just above 1 percent in 2020 and estimates the chance of a recession starting in 2020 at about 50-50. The National Association for Business Economics said in a survey released this week that roughly half the economists who responded to its latest survey expect a recession to have begun by the end of 2020.
The forecasts from the Trump administration are far rosier. Its officials have projected that the administration's policies will produce growth surpassing 3 percent in coming years.
Kevin Hassett, chairman of the White House Council of Economic Advisers, argued in an interview Thursday that private forecasters are relying on outdated models that don't fully reflect the latest research. Hassett said he had forecast growth of 3.1 percent for 2018, when measured on a fourth-quarter-to-fourth-quarter basis and said that that pace was achieved.
"It worked exactly the way I said," Hassett said.
For 2019 as a whole, Hassett said he foresees growth improving to 3.2 percent -- well above the expectations of most economists.
Most economists believe the shutdown did little long-term damage to the economy. Consumer confidence rebounded in February as federal workers returned to work and the stock market bounced back from its December slump. Job growth never suffered.
"The fears of the economic expansion's demise seem to have been greatly exaggerated," said Beth Ann Bovino, chief U.S. economist for Standard & Poor's Ratings Services. She called Thursday's report promising and said it suggested the economy entered 2019 on firmer footing than some economists had feared.
There are other reasons to think the economy could prove resilient. Trade tensions with China seem to have eased somewhat in recent weeks. The Federal Reserve has backed off plans to raise interest rates. And the combination of low unemployment, rising wages and low oil prices should help drive consumer spending.
"All the fundamentals are there for a solid consumer recovery," said Michael Pearce of Capital Economics.
The government shutdown came too late to make much difference to the fourth quarter, but it could be a significant drag on growth early in the year. The funding lapse idled hundreds of thousands of federal workers, left hundreds of thousands more working without pay and disrupted air travel, among other effects. Consumer confidence plummeted. Macroeconomic Advisers on Thursday cut its estimate of growth in the current quarter to 1.1 percent.
Growth that weak would leave the United States with little buffer against an unexpected round of bad news -- an escalation in the trade war with China, for example, or another round of fiscal gamesmanship around the debt ceiling.
The economic expansion, now in its 10th year, is the second-longest on record. If it lasts beyond June, it will surpass the decade-long recovery from March 1991 to March 2001. Despite its duration, the expansion has been marked by the weakest annual growth rates of any recovery in the post-World War II period -- just above 2 percent.
In a separate report Thursday, the government said that applications for unemployment benefits, a reflection of layoffs, rose by 8,000 last week to a seasonally adjusted 225,000. That is still a low level by historical standards and suggests that businesses are mostly maintaining their workers in a tight job market. The unemployment rate is 4 percent, near a half-century low.
The economy's 2.6 percent annual growth rate last quarter, though solid, was the slowest since a 2.2 percent pace in the first quarter of 2018. That was followed by two strong quarters last year. Trump has often cited those performances as evidence that his program of tax cuts, reductions in regulations and tougher enforcement of trade agreements was working.
Thursday's GDP report from the Commerce Department had been delayed by a month because of the government shutdown. And there will be only two estimates for last quarter's GDP, rather than the usual three.
The report showed that consumer spending slowed to a still solid growth rate of 2.8 percent in the fourth quarter, down from 3.5 percent growth in the third quarter. Business investment spending came in at a strong 6.2 percent annual rate, up from 2.5 percent in the previous quarter.
The trade deficit subtracted an estimated 0.2 percentage point from the annual growth rate, though that was much less of a drag than the 2 percentage point cut in the third quarter.
Government spending grew at a rate of 0.4 percent. But nondefense spending fell at a rate of 5.6 percent, a drop that partially reflected the government shutdown.
Information for this article was contributed by Martin Crutsinger, Josh Boak and Christopher Rugaber of The Associated Press; by Ben Casselman of Bloomberg News; and by Heather Long of The Washington Post.
A Section on 03/01/2019