USA economy grew modestly in the first quarter

Adjust Comment Print

Gross domestic product - the value of all goods and services produced in the US, adjusted for inflation - rose at an annual rate of 2.3% for the months of January through March, the Commerce Department said Friday. Economists widely anticipated the economy to grow at 2 percent, a downgrade from the fourth quarter of 2017 when the economy grew at 2.9 percent. "Tax cuts will support consumer spending and business investment", while "trade is certainly a risk".

Analysts viewed the first quarter slowdown as temporary, with consumers expected to boost their spending amid a low unemployment rate and the initial impact of the $1.5 trillion in tax cuts that Congress approved in December.

The first-quarter figures showed household consumption added 0.73 percentage point to GDP growth, following 2.75 points in the prior quarter that representing a 4 percent annualized gain. After inventories subtracted 0.5% to GDP last quarter, they contributed 0.4% in the first quarter.

While the Trump administration has vowed to accelerate annual US economic growth to over 3 percent, the Federal Reserve last month expected USA economy to expand at 2.7 percent for the whole year 2018. Excluding food and energy prices, the PCE price index increased 2.5 percent.

The Commerce Department report showed a robust contribution from business investment, which rose more than 6 percent. Today's growth reading is the first...

Beyond quarterly gyrations, underlying demand looks resilient, analysts said before the report.

Meanwhile net exports added 0.20 percentage point to growth.

The Trump administration's goal of 3% sustained growth, has challenges in an environment of dissipating inflation and borrowing costs not to mention the possible headwinds from recent tariffs on trade.


Consumer spending, which accounts for more than two-thirds of the economy, eased to 1.1% - the slowest pace since Q2 2013 - after spending grew by 4% in the previous quarter.

We highlight this not to be bearish on the economy but rather to signal that despite rising wage pressures, the pickup in growth remains moderate, and therefore the Fed's proposed course of action remains appropriate.

"The trend is probably better than what you're seeing", said economist Jim O'Sullivan of High-Frequency Economics. The previous quarter included big spending days like Christmas and Black Friday, so spending was expected to come down, but not this dramatically.

Among the details, business spending on equipment rose 4.7%, after a three-year high of an 11.6% jump. The U.S. central bank raised interest rates last month in a nod to the strong labor market and economy, and forecast at least two more rate hikes this year.

With the continued decrease, the ten-year yield pulled back further after close above the key 3 percent level for the first time in well over four years on Wednesday.

"Right now, consumers are cautious", Navy Federal Credit Union economist Robert Frick said in a note to clients, adding the drop in durable goods spending "points to consumers avoiding big ticket items to conserve cash". Large consumer companies, including Nestle, Unilever and Reckitt Benckiser Group, have said they're struggling to raise prices on their products because of intense retail competition.

At the same time, Boeing said it's seeing solid global demand, while United Parcel Service said the US economy is showing "healthy fundamentals".

Comments