US economy likely slowed last quarter, but rebound expected

Andrew Cummings
April 30, 2017

The slow growth appeared to be mostly due to the fact that consumer purchasing was way down for the quarter, possibly related to the particularly warm weather, allowing consumers to spend less on heating for their homes.

Economists believe Federal Reserve officials are likely to view both the anemic consumer spending and GDP growth as temporary when they meet next week.

The results mark a damp start to the presidency of Donald Trump, who reaches 100 days in office Saturday and was elected on a message of a protectionist economic revival.

Meanwhile, spending on durable goods dropped 2.5 percent after growing 11.4 percent in the fourth quarter.

Growth has averaged one percent in first quarters over the last seven years, well below average growth in other quarters, according to Jim O'Sullivan of High Frequency Economics.

"The only way to go from 2% from 3% is a combination of deficit-neutral tax cuts, more infrastructure spending, and most importantly of all, more immigration", he said.

Commerce Secretary Wilbur Ross said the low growth meant the United States should adopt the Trump administration's proposals to slash taxes and regulation.

Economists are skeptical that fiscal stimulus, if it materializes, will fire up the economy given weak productivity and labor shortages in some areas. They are forecasting growth this year around 2.2 percent.

Analysts had forecast a first quarter slowdown, but the 0.7 percent growth was below expectations.

Consumer spending fell to its lowest level in almost eight years, adding only 0.3 percent, with spending on services their lowest in four years and durable goods orders their lowest since 2011. Imports, which are a subtraction in the calculation of GDP, increased.

Gross domestic product increased at a 0.7 per cent annual rate also as the government further cut defence spending and businesses spent less on inventories, the Commerce Department said on Friday in its advance estimate.

Spending on mining exploration, wells and shafts surged at a record 449 percent rate after rising at a 23.7 percent pace in the fourth quarter, accounting for the rise in nonresidential structures investment.

Weakness in the first quarter followed by a stronger expansion in the spring has become a pattern in recent years. Of course, these estimates might drift higher with passage of more pro-growth policies, especially in terms of the outlook later this year and into 2018.

"Sky-high consumer confidence and rising wages suggest that spending should bounce back quickly during the rest of the year, driving the economy to overall growth of around 2 percent in 2017, in line with long-term trends", he said. Growth is expected to be fueled by a revival in consumer spending, supported by continued strong job growth, accelerating wage gains and record stock levels.

Brazil's unemployment rate increased in the January-to-March period, as Latin America's largest economy struggles to rekindle growth. "I think the consumer is going to be in pretty decent shape" in the second quarter.

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