Decline in consumption leads to slowest U.S. economy growth in 3 years

Brexit1321

Brexit1321

The lackluster beginning to 2017 also marks the first quarterly economic report card for President Donald Trump, who has vowed to rev up the US economy.

Gross domestic product increased at a 0.7 percent annual rate also as the government further cut defense spending, the Commerce Department said on Friday in its advance estimate.

The U.S. economy has usually experienced weak performance in the first quarter of each year.

Averaging the first two quarters, economists forecast growth of around 2 percent for the first half of this year.

"Overall, our forecast is for real GDP growth to ease from 1.8 percent previous year to 1.6 percent in 2017 and 1.3 percent in 2018", added Nordea Bank.

The labor market now is close to full employment and the confidence of consumers is close to highs of multi-years, which suggests that the sharp slowdown mostly created by weather in spending by consumers is likely to be short-lived. Trump can't easily say, "I want credit some 2017 economic data, but only the good news, not the bad news". Spending on nondurable goods and services was also soft, up 1.5 percent and 0.4 percent, respectively. Equipment investment grew by 9.1 percent, the strongest growth since it also grew at a 9.1 percent rate in the third quarter of 2015.

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That broadening-out of demand across the USA economy should create a solid picture for the consumer in the second quarter, said Sam Bullard, senior economist at Wells Fargo Securities in Charlotte, North Carolina. In the first quarter of 2017, the economy saw growth of just 0.7%, the smallest rate of growth in 3 years. Because almost a third of this quarter occurred under the final days of the Obama administration, Trump will likely turn the focus of this dismal report to his predecessor.

At the same time, there are reasons to be cautious about signs of wage growth: The employment cost index isn't adjusted for inflation, meaning the real gains to the consumer have been more tepid.

First-quarter GDP also tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.

Business investment, which has been sluggish the last couple of years, increased sharply. While that contribution was rather paltry, it was significantly better than the 1.82 percentage point subtraction from net exports to the headline number in the fourth quarter. "A warm one, as was the case this year, can produce lower utility bills", said Brian Schaitkin, senior economist at the Conference Board.

Most economists believe the economy is picking up speed. The overall GDP deflator rose at a 2.2 percent annual rate, with the core PCE rising at a 2.0 percent annual rate in the quarter. The slowdown in inventory rebuilding cut almost a percentage point from growth in the first quarter. GDP hasn't seen growth of that magnitude since before the financial crisis.

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