Services Data Point to Sharper Slowdown
Date: Friday, March 22, 2019
Source: The Wall Street Journal
WASHINGTON—Americans’ spending on services slowed sharply in the fourth quarter, suggesting the economy lost more momentum at the end of 2018 than previously believed.
Revenues across the U.S. service sector rose a seasonally adjusted 1.2% in the fourth quarter from the third, the Census Bureau said Thursday. That marked the weakest pace of growth in five quarters.
Economists said the figures, along with other recent data, are likely to force downward revisions to official estimates of fourth-quarter gross domestic product. The Bureau of Economic Analysis said on Feb. 28 that U.S. GDP grew at a 2.6% annualized rate in the fourth quarter from the previous three months.
That initial estimate was “based on source data that are incomplete or subject to further revision,” the agency said when the GDP estimate was released.
Uncertainty around fourth-quarter GDP was heightened by the partial government shutdown in December and January, which caused significant delays to economic-data reports that factor into the GDP numbers.
Since publishing the initial GDP report, the government has released data on December construction spending and trade that have come in soft. It was Thursday’s quarterly services survey, however, that prompted the biggest downward revisions to private economists’ GDP estimates.
The government’s revised estimate of fourth-quarter GDP growth, scheduled for release on March 28, will likely be 1.8%, economists at JP Morgan said Thursday, citing the services-sector data.
Research firm Macroeconomic Advisers lowered its estimate of fourth-quarter GDP growth to 2% from 2.3% and also cut its estimate of first-quarter growth to 1.1% from 1.4%.
Another research firm, Oxford Economics USA, reduced its fourth-quarter GDP growth estimate by 0.1 percentage point, to 1.9%, on the services-sector data.
In addition to painting a clearer picture of what happened at the end of 2018, Thursday’s figures give “an indication of where things are headed in terms of trends,” said James Bohnaker, an economist at Macroeconomic Advisers.
“The data that’s coming out related to the consumer sector is just looking softer and softer each time,” he said. “It’s all about momentum.”
Another possible consequence of Thursday’s figures is that they could push full-year 2018 GDP growth below the 3% mark that the Trump administration points to as evidence that its policies have lifted the U.S. economy’s prospects.
By the BEA’s initial estimate, U.S. GDP expanded 3.1% in the fourth quarter from the same period a year earlier. For the fourth quarter, it was the fastest year-over-year growth since 2005, a fact that President Trump has frequently pointed out since the GDP figures were released.
“The first time in 14 years that we cracked 3 [percent], right?” Mr. Trump said at an Ohio manufacturing facility on Wednesday, eliciting applause from the audience. “I said, ‘We’re going to break 3.’ And we did. We did 3.1.”
JP Morgan and Macroeconomic Advisers’ updated GDP models point to 2.9% growth in the fourth quarter from a year earlier.