BEA Data: Slower GDP Growth Due to Weaker Business Investment and Trade

By at 30 January, 2020, 12:36 pm

by Raymond J. Keating-

The latest report on GDP from the U.S. Bureau of Economic Analysis showed that slower growth persisted in the fourth quarter of 2019, and real GDP for all of 2019 slowed notably. The culprits were faltering business investment and trade.

In the fourth quarter 2019, real GDP grew 2.1 percent (annualized rate). That came after 2.1 percent growth in the third quarter, and 2.0 percent in the second quarter.

Source: Federal Reserve Bank of St. Louis, FRED

As for the consumer in the fourth quarter, real personal consumption expenditures grew by 1.8 percent, which was a dramatic slowdown from the two previous quarters (3.2 percent in the third quarter and 4.6 percent in the second quarter).

Private investment declined for the third quarter in a row, dropping by 6.1 percent in the fourth quarter.

Within the investment data, nonresidential fixed investment – that is, business investment – fell by 1.5 percent in the fourth quarter, which followed on declines of 2.3 percent in the third quarter and 1.0 percent in the second quarter.

Among the three major portions of business investment, investment in structures declined by 10.1 percent, and fell in three of the last four quarters, and in five of the last six quarters. Investment in equipment declined by 2.9 percent, and dropped in two of the last three quarters, and in three of the last four quarters. Finally, the only area of investment showing growth was intellectual property products, which grew by 5.9 percent in the fourth quarter, and has grown consistently for nearly three years.

Residential (housing) investment actually grew by 5.8 percent in the fourth quarter 2019. That was the second consecutive quarter of growth, after a long stretch of quarterly declines.

On the trade front, real exports grew by only 1.4 percent in the fourth quarter. That marked the third quarter in a row of either decline or slow growth. Meanwhile, imports plummeted by 8.7 percent in the fourth quarter, which followed on three previous quarter of slow growth or decline.

For all of 2019, real GDP grew at 2.3 percent, which was the slowest year since 2016. Real private investment growth was slow (1.8 percent), including slow business investment (2.1 percent); exports didn’t grow at all (0 percent); imports grew by only 1.0 percent; and growth in personal consumption expenditure growth registered 2.6 percent (down from 3.0 percent in 2018).

History tells us that the U.S. economy should be growing, on average, at better than 3 percent. So, the U.S. economy under-performed in the fourth quarter of 2019 and for the entire year. This, unfortunately, has been the case since the last recession, with varying causes along the way. Again, the key sources of the growth problem recently have been trade and business investment. Each of those shortfalls can be tied back to the uncertainties and increased costs tied to various trade and protectionists policies of the Trump administration. And keep in mind that sluggish or declining business investment is not only bad for economic growth now, but in the future as well, as productivity will suffer.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


News and Media Releases