Fact Checked

U.S. economy grew faster than expected at end of 2018: What that means and why it matters

Two people calculating numbers in an officeImage: Two people calculating numbers in an office
Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.

Gross domestic product rose 2.6% in the last three months of 2018 — exceeding expectations by economists who’d predicted growth to be at 2.2%. So by this measure, the economy appears to be doing better than some had thought.

But this 2.6% growth rate, an initial estimate by the Bureau of Economic Analysis, was lower than GDP gains earlier in 2018, signaling that the economy may have felt the effects of the partial government shutdown at the end of last year. What’s more, 2019 could bring new challenges for continued economic growth.

Want to know more?

Why does this matter?

GDP, which measures the value of goods and services produced by the U.S., is an important gauge for U.S. policymakers to measure the health of the economy.

For the year, annual GDP grew 2.9% in 2018, which shows the economy is expanding. But the latest GDP numbers indicate a slowed trajectory at the end of the year, leaving questions about the pace of U.S. economic growth.

What are people saying?

There’s been ongoing speculation about the health of the U.S. economy. Despite positive GDP data all year, fourth-quarter GDP grew at a seasonally adjusted rate of 2.6% compared with 3.4% in the third quarter and 4.2% in the second quarter. The slowing rate of growth in the last three months of 2018 may have been due, in part, to the government shutdown, which spanned part of the fourth quarter as well as the first quarter of 2019. The U.S. Department of Commerce said the shutdown shaved about 0.1 percentage points off fourth-quarter GDP growth.

At the same time, some experts point to robust consumer spending, a strong job market and rising household income as positive indicators that the U.S. economy remains healthy.

What could happen next?

There are a several policy factors that are likely to affect GDP this year.

According to a report in The Wall Street Journal, White House economists think lingering effects of the government shutdown might hurt GDP growth in the first quarter of 2019. But the economy should bounce back to 3% growth, on average, this year, the economists told The Journal.

Expiring tax credits that some economists believe were responsible for raising GDP growth rates in 2018 could be a potential drag on GDP in 2019. Without these temporary tax measures, some economic forecasters think economic growth may slow to 2% on average in 2019.

To stay on top of updates about the economy and GDP growth, you can follow the Bureau of Economic Analysis.

About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer and editor and holds a bachelor’s… Read more.