The U.S. economy in the fourth quarter of 2019 expanded at an annual rate of 2.1 percent, ending the year with an annual growth of 2.3 percent, the U.S. Commerce Department reported Thursday.

In the fourth quarter, a downturn in imports, an acceleration in government spending, and a smaller decrease in nonresidential investment were offset by a larger decrease in private inventory investment and a slowdown in personal consumption expenditures (PCE), according to the "advance" estimate by the department's Bureau of Economic Analysis.

"The U.S. growth picture arrived spot on with the 2.1 percent economic consensus driven by solid but slowing personal consumption and strong government spending," Joseph Brusuelas, chief economist at accounting and consulting firm RSM US LLP, wrote in an analysis Thursday.

"The large drop in imports, along with the noticeable easing of spending in the fourth quarter, does denote some caution on the growth picture in light of growing domestic and global risks," wrote Brusuelas.

PCE, which accounts for more than two-thirds of the overall economy, grew at an annual rate of 1.8 percent in the fourth quarter, lower than the 3.2 percent growth pace in the third quarter, and adding 1.20 percentage points to GDP in the fourth quarter.

"Consumer spending, which typically gets a boost from housing, slowed fairly significantly over the period," wrote Diane Swonk, chief economist at Grant Thornton, a major accounting firm.

Nonresidential fixed investment, a measure of corporate spending on structures and equipment, fell at an annual rate of 1.5 percent in the fourth quarter, resulting in a 0.20 percentage point drag on GDP. Nonresidential fixed investment also contracted in the third and the second quarters.

"Business investment declined for the third consecutive quarter as weak growth abroad and tariffs took a toll on business planning," Swonk wrote, adding that orders for new equipment shrank in December, which suggested that "weakness will continue."

Private inventories subtracted 1.09 percentage points from GDP growth in the fourth quarter, after cutting 0.03 in the third quarter and 0.91 in the second.

Net exports, meanwhile, added 1.48 percentage points to GDP growth in the fourth quarter, after shaving 0.14 percentage point off the growth in the third quarter and 0.68 percentage point in the second.

Swonk said that trade deficit narrowed "for the wrong reasons," as imports fell more rapidly than exports. "Much of the drop in imports reflected the unwinding of hedges against additional tariffs," she said, noting that companies had bought ahead of tariffs that were scheduled to hit in the fourth quarter.

According to the "advance" estimate, real GDP growth in the fourth quarter of 2019 was the same as that in the third. It was slightly up from the 2 percent in the second quarter, and marked a sharp deceleration from the 3.1 percent in the first quarter.

In an analysis published earlier this week, Brusuelas said late in business cycles, the Bureau of Economic Analysis tends to "overestimate" growth its its first estimate and then tends to revise growth prints down over the next two estimates. The second estimate will be released on Feb. 27.

The year-over-year GDP growth was 2.3 percent in 2019, compared to 2.9 percent in 2018, primarily reflecting decelerations in nonresidential fixed investment and PCE and a downturn in exports, the report said.

"Rate cuts by the Federal Reserve helped to blunt the effects of weaker growth abroad and trade wars in 2019," Swonk wrote, noting that the central bank's rate cuts partially offset losses in manufacturing with a "turnaround" in the housing sector.

The U.S. Federal Reserve lowered rates three times in 2019, amid growing uncertainty stemming from trade tensions, weakness in global growth and muted inflation pressures. These policy adjustments put the current federal funds rate target range at 1.5 percent to 1.75 percent.

The Federal Open Market Committee, the Fed's policy-setting body, left interest rates unchanged on Wednesday and maintained a wait-and-see stance after wrapping up its first monetary policy meeting of 2020.

The price index for PCE, the central bank's preferred inflation indicator, rose just 1.6 percent in 2019, still below its target of 2 percent. Excluding food and energy prices, the PCE price index only increased 1.3 percent in the fourth quarter.

In a statement, the committee said U.S. economic activity has been rising at a "moderate rate" since the last meeting in December with household spending rising at a "moderate pace," while business fixed investment and exports "remain weak."

"The Federal Reserve Open Market Committee attempted to thread the needle in its January meeting by maintaining its existing policy rate while acknowledging moderating real consumption," Brusuelas wrote.

According to a new survey released by the National Association for Business Economics earlier this week, about two-thirds of respondents expect inflation-adjusted U.S. GDP to increase by 1.1 percent to 2.0 percent over the next four quarters. 

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