Fourth quarter growth buoyed by defense spending amid weaker data
The U.S. growth picture in the fourth quarter of 2019 was spot on trend, driven by strong government spending amid solid but slowing personal consumption. A large drop in imports, along with noticeable easing of spending, denotes some caution on the outlook in light of growing domestic and global risks.
Private investment fell by 6.1% on an annualized basis in the fourth quarter, and personal consumption—which has been the mainstay of the economy—grew by only 1.8%, with declines in both durable and non-durable purchases.
The economy enters 2020 on unsteady footing, linked to a far less attractive composition of growth, the shutdown of 737 Max production at Boeing and global headwinds that may pick up linked to the coronavirus crisis across the globe. As such, we expect the underlying economy to continue growing at its sub-2% rate.
This moderate growth outlook is clearly affecting global financial markets. The yield on the 10-year U.S. government security is trading near 1.57%, down 34 basis points since the beginning of the year. For now, this will not move the needle on Federal Reserve policy. We think the Fed will prefer to spend 2020 on the sidelines and out of the harsh political spotlight.