IN THIS ISSUE:

1. The US Economy Grew by Almost 3% Last Year

2. The Inverted Yield Curve & The Odds of a Recession

3. Will Inverted Yield Curve Spark a Fed Funds Rate Cut?

The US Economy Grew by Almost 3% Last Year

The Commerce Department reported late last week that 4Q Gross Domestic Product rose only 2.2% (annual rate), down from its initial estimate of 2.6%. For all of 2018, GDP rose by 2.9% versus only 2.2% in 2017 and 1.6% in 2016.

The 4Q slowdown to 2.2% in GDP followed annualized growth of 3.4% in the 3Q and 4.2% in the 2Q. The weaker than expected showing in the 4Q was the result of downward revisions to consumer spending, state and local government spending and nonresidential fixed investment.

Real GDP

The weaker than expected GDP growth in the 4Q has led to increased concerns that the economy has slowed even more in the 1Q of this year. Forecasters point to weakness in the global economy, fading government stimulus and rising trade tensions as key concerns for growth this year.

Most economists agree that US economic growth slowed further in the 1Q of this year, with most estimates coming in around only 1.5% for the January to March quarter. We won’t get the first Commerce Department estimate of 1Q GDP growth until April 26.

The current economic recovery is on-track to become the longest in US history if GDP remains positive past June, surpassing the 10-year expansion of 1991-2000. However, this has been the weakest economic recovery in the post-World War II period.

As I wrote in my Blog last Thursday, the Trump administration is projecting GDP growth to average 3% over the next 10 years. I cautioned that Trump’s 3% forecast was too optimistic, and the slowdown in the 4Q and even more in the 1Q of this year are evidence of that. Most economists expect growth to average around 2% over the next decade.