The U.S. economy slowed to a 2.6% annual growth rate in the fourth quarter, as the stimulus faded from President Donald Trump's late-2017 tax cuts and consumers reined in spending amid nagging uncertainty over his policies, from the trade war with China to the longest-ever government shutdown.
But the growth rate, published by the Commerce Department on Thursday, was surprisingly high, exceeding economists' average projection for 2.5% growth in gross domestic product based on a survey by the data provider FactSet. The economy had expanded at a 3.4% pace in the third quarter.
The latest figure reflected slowdowns in private inventory investment, consumer spending and federal government spending, along with a decline in state and local government spending, according to the Commerce Department. On the bright side, the December report showed an acceleration in so-called nonresidential fixed investment -- a key barometer of business executives' confidence in future profits.
The fourth-quarter growth rate had been highly anticipated in recent months, as economists and investors alike debated how quickly the economy was slowing late last year. Concern over a possible global recession sent U.S. markets reeling in December, even as officials at the Federal Reserve insisted that growth, at least domestically, remained on a solid footing.
Anxiety over the figure was amplified by a month-long delay in the report due to worker furloughs at the agency that produced it: the Commerce Department's Bureau of Economic Analysis.
Economists consider business investment to be a key indicator of future growth, because it tends to lead to productivity increases and can presage output growth along with potential new hiring.
"It was surprising to see business investment hold up in December despite all the turbulence in financial markets," Charlie Ripley, senior strategist at the asset manager Allianz Investment Management, said in a phone interview.
The Bureau of Economic Analysis cautioned in its press release that some data typically used to compile the report were still missing. An update is scheduled for March 28.
"The partial federal government shutdown that occurred in late December and January resulted in delays of many of the principal source data that are used to produce estimates of GDP," the bureau said.
The S&P 500 index of large U.S. stocks slipped 0.2% on Thursday to 2,787. Yields on 10-year U.S. Treasury bonds rose by 0.02 percentage point to 2.71%.
Ian Shepherdson, chief economist at the forecasting firm Pantheon Macroeconomics, wrote in a note to clients that growth exceeded expectations partly because of a 13% jump in investment in intellectual property, nearly double the recent trend.
"These numbers are volatile and a much smaller gain is likely" in the current quarter, he wrote.
At the same time, consumer spending in late 2018 appears to have been buoyed by the plunge in retail gasoline prices. Pump prices averaged $2.37 a gallon nationally in December, the lowest in two years, based on data from the motorists' club AAA.
"Growth had to slow as the boost from the tax cuts faded, though the transition was eased by the plunge in gas prices," according to Shepherdson.
Going forward, the economy faces "headwinds" since gas prices have rebounded somewhat, while the latest economic indicators suggest that business spending is likely "softening," the economist wrote.
For the full year, the U.S. economy grew at a 2.9% pace, just below the Trump administration's promise of 3% growth when it was pushing in 2017 for the $1.5 trillion tax-cut bill, which Republicans passed late that year.
The tax cuts have swelled the federal government's annual budget deficits, forcing the Treasury Department to borrow to cover the difference and ballooning the national debt past an already-lofty $22 trillion.
Some analysts argue that many corporations used their tax windfall to buy back their own stock -- a short-term financial-engineering tactic designed to provide a quick boost to earnings-per-share -- rather than investing in future growth.
"The bigger picture for this year is that growth is reverting to the post-crash trend, of 2% to 2.5%, demonstrating that the personal tax cuts offered nothing more than a sugar high, and that the business tax cuts did nothing to lift trend growth," according to Shepherdson. "Though they did make shareholders richer."