U.S. GDP Comes in Below Expectations at 0.7 Percent

Cheryl Sanders
May 1, 2017

The Bureau of Economic Analysis reported that the USA economy grew 0.7 percent at the annual rate in the first quarter, starting 2017 off on a soft start as expected.

Economists estimate that growth in consumer spending, which accounts for more than two-thirds of USA economic activity, braked to below a 1.0 percent rate in the first quarter. It was the poorest quarterly showing in more than seven years.

There was some good news in the first quarter.

"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. He plans to aggressively reduce taxes, which could leave the federal government short trillions of dollars in revenue unless the budget is bolstered by strong economic growth. "We have come a long way on inflation, but I don't see a lot of near-term continued upward pressure". In recent years, the first quarter performed poorly, due to a variety of reasons, including the government having problems adjusting its figures for seasonal changes, according to AP.

THE US economy grew at its weakest pace in three years in the first quarter as consumer spending nearly stalled, but a surge in business investment and wage growth suggested activity would regain momentum as the year progresses. After registering a strong 3.5% gain in Q4, real consumer spending advanced just 0.3% in Q1, the weakest annualized pace of growth since Q4 of 2009. "Yet the report still highlights the challenge that this administration - which marks [President] Trump's first 100 days in office on Saturday - will face trying to meet its target rate of 3 percent economic growth".

In other economic news, European statistics agency Eurostat said Friday that its headline rate rose to 1.9 percent over the year to April from 1.5 percent the previous month.

But in 1934, the US economy bounced back, growing by 10.8 percent, followed by 8.9 percent growth in 1935, 12.9 percent growth in 1936, and 5.1 percent growth in 1937.

Trump is targeting infrastructure spending, tax cuts and deregulation to achieve his goal of faster economic growth.

In announcing the proposed cuts and revisions of the tax code, Treasury Secretary Steven Mnuchin said he believed growth above 3 percent would be achievable.

A recovery in oil prices helped sustain growth in this category, with mining, exploration, shafts and wells skyrocketing to 449 percent, an all-time record, up from 23.7 percent in the prior quarter. Consumer spending makes up about two-thirds of US economic activity.

Investment in home building is also expected to have gained momentum in the first quarter. "With a little more ammunition in savings and the housing market continuing to take off, the fundamentals for the consumer are still constructive towards growth".

A separate report on Friday from the Labour Department showed private wages and salaries accelerated 0.9 per cent in the first quarter, the largest increase in a 10 years.

Imports increased, which subtracts in the calculation of GDP. Growth hasn't been that sluggish since the first quarter of 2014 when it actually shrank. But some expected more disappointing results, like the Atlanta Federal Reserve, which projected growth of just 0.2 percent.

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