The Commerce Department reported today that gross domestic product (GDP)—the widest measure of U.S. economic activity—grew at just a 2.1 percent annualized rate in the fourth quarter of 2019, the same rate that it grew in the third quarter. Notably, business investment contracted for the third straight quarter—the first time this has happened since the Great Recession in 2009. Given that boosting business investment was the primary stated goal of the Tax Cuts and Jobs Act (TCJA) passed in 2017, this seems like an unambiguous policy failure. Growth in the fourth quarter was buoyed by government spending, in both the federal and state and local sectors. Changes in private inventories—a component of GDP that is quite volatile—subtracted 1.1 percentage points off of the fourth quarter growth rate, after adding to growth in the third quarter. The most closely watched price index for assessing inflationary pressures building up in the economy—the year-over-year change in the price deflator for “core” personal consumption expenditures (excluding food and energy prices) rose just 1.6 percent, decelerating substantially from the previous quarter’s 1.9 percent growth. All in all, today’s data show an economy that is far from overheating and with room left to spur growth through more public spending. It also shows the failure of the 2017 tax cuts to durably lift growth.
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